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Managing conflicts of interest when you’re an officer of a GP federation

As GP federations have become more established, we are receiving an increasing number of enquiries about the role of the federation’s officers.

Most GP federations are organised as limited companies, with shares owned by the member practices. The role of the federation is generally to secure and manage healthcare contracts for their area, which will typically be delivered by some or all of the member practices.

Like any other limited company, a federation and its activity will be overseen by a board of directors. These officers will be governed by certain statutory and fiduciary responsibilities, which will guide how they need to act in relation to the federation and its member practices.

Where it gets complicated is that the directors of a GP federation are typically also partners in a member practice, as well as shareholders in the GP federation. Each officer, therefore, needs to fulfil a number of roles at any one time, each of which carries its own legal and contractual obligations, and sometimes these may conflict.

Another consideration is tax. With income from the different roles being taxed in different ways, it is important to be able to demonstrate that money flows are based on the needs and obligations of the role, not as a way to avoid tax.

Responsibilities of a Director

Company Directors are the agents appointed to act on a company’s behalf, and have statutory responsibilities to act in the best interests of the company as a whole. The statutory responsibilities of a director are set out in the Companies Act 2006, and it is important that all directors are familiar with these. Some of the key points are to remember that a director must act within the powers delegated to them, must do so with reasonable skill and diligence and must avoid conflicts of interest. The bar is not set especially high, but directors should be aware that failure to meet these obligations can result in a variety of sanctions against them personally. Other responsibilities of the directors may be set out in the company’s Articles or in an agreement between the shareholders. Directors of a limited company are employees and are paid through the payroll, and if a GP federation is trading the directors will need to commit some time to it in order to fulfil their responsibilities.

Responsibilities of a Shareholder

The shareholders are the owners of the GP federation and will usually have committed some of their own capital to the business. Shareholders should provide strategic control over the company and guidance to the directors. The shareholders act through General Meetings, and have a small number of statutory powers such as removing directors and changing the name of the company. Any other powers retained by the shareholders are normally set out either in the Articles of the company or in a shareholders agreement. These documents are particularly important where the shareholders and directors are not identical. Since the ‘real’ shareholders of a GP federation are normally all the partners in the underlying practices (rather than the ‘nominee’ shareholder on the share register), it is rare for a GP federation to have identical ‘real’ shareholders and directors. It is important that all the partners understand their role as shareholders, and have a mechanism in place for the nominee shareholder to vote on their behalf. This mechanism is usually set out in a ‘deed of trust’ between the partners in a practice, or within their partnership agreement. Shareholders are not ‘paid’ for any work they do, but they may receive income through dividends on the share(s) they hold.

Responsibilities of a Partner

The responsibilities of partners are as set out in their partnership agreement and the Partnership Act 1890. These can generally be summarised as acting in good faith towards each other and in the overall best interests of the partnership. This means that a partner who is also a director of a GP federation must act in the best interests of BOTH the partnership and the GP federation. Partners are self employed for all income earned through the partnership.

There can be times when these obligations do not align, which opens the door for conflicts of interest to arise.

Conflicts of Interest

Take the example of a GP federation director who is also a partner in a member practice. If a contract is won by the federation to provide a joint service it may be in the interest of the partner’s practice for them to deliver the service, as they would be paid for doing so. However, another member practice may be better equipped to deliver the service or be able to do so more cost effectively. Who should get the work?

Alternatively, a director may find that it is more tax advantageous to be paid as a partner in the member practice, or indeed as a shareholder taking dividends. How should they account for their time spent meeting their obligations as a company director?

Putting steps in place to protect yourself

For any officer, being able to clearly demonstrate how a decision was reached and why you behaved in a particular way is key to managing potential conflicts of interest.

There are steps you can take to do this, including:

  1. Shareholders’ agreement – this should specify which decisions are to be retained by the shareholders, the terms under which dividends are to be paid, and the mechanisms by which shareholders reach agreement
  2. Company Articles – these should be checked to ensure they are consistent with the shareholders agreement, as well as any NHS Regulatory requirements
  3. Directors’ service agreement – each director should have a service agreement describing their role, responsibilities and remuneration
  4. Partnership agreement/deed of trust – in addition to setting out the ‘normal’ responsibilities in a GP partnership, these documents should explain the role of the nominee shareholder and contemplate the potential conflicts of a GP federation director.
  5. Minutes – Minutes should be kept of practice partnership meetings, company shareholder general meetings, and GP federation board meetings

Due to the nature of a GP federation, conflicts of interests are almost inevitable. Your best protection will be to understand what each role entails including its statutory and contractual obligations.

Then, by formally documenting each role and process, you will be able to better justify why things happened as they did. You’ll have a way to explain your actions and the context when a conflict arises.

For more information about GP federations, partnership agreements and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com