From 1 October 2009, certain provisions of the Companies Act 2006 were applied (with necessary modifications) to LLPs. For full details see our Corporate e-bulletin 2009/25. Of particular note is the application of section 994 of the Companies Act 2006 ("section 994") which allows members of an LLP to apply to Court by petition on the grounds that the affairs of the LLP are being or have been conducted in a manner that is unfairly prejudicial to the interests of the members generally or some of its members.

This concept of section 994 is not new. It replaces in almost identical terms section 459 of the Companies Act 1985 ("section 459"). However, LLPs need to reconsider whether to exclude section 994 and if so how. Exclusions of section 459 will extend to section 994 if the LLP Agreement incorporates statutory amendments. However, if there is any doubt as to this or the LLP wishes to exclude section 994 expressly, the LLP agreement should be amended. The exclusion will only be effective if it is recorded in writing and has the unanimous agreement of the LLP's members.

Many LLPs have excluded section 459 historically so as to avoid giving any disgruntled member the power to disrupt the LLP with any petition. Nevertheless LLPs should consider carefully whether the exclusion of this power is in its interests. It is likely to be in the context of large firms where management is reserved to various committees, as it will often be difficult to act in the interests of all members, notwithstanding that action taken is not intended to be unfairly prejudicial to certain members. Smaller firms who exclude section 994 may, however, find themselves in a situation where the only means of breaking deadlock is an application to the Court for a just and equitable winding up (which cannot be excluded by agreement). This is less than satisfactory, particularly as it will be heard in public because it cannot be subject to a confidential arbitration.

LLPs which do not exclude section 994 should consider whether any dispute resolution clauses are drafted appropriately enough to bring any petitions under this section within their ambit.