Section 994 Companies Act 2006 came into force on 1 October. It allows members of an LLP to petition the court that the affairs of the LLP are being conducted in a way that is ‘unfairly prejudicial’ to the interests of some, or all, of its members.

Section 994 replaces (in almost identical terms) s459 CA 1985. However, LLPs need to consider whether to exclude s994; an existing exclusion of s459 will apply to s994 if the LLP agreement incorporates statutory amendments. But, if there is any doubt to this, or if the LLP wants to exclude s994 expressly, the LLP agreement will have to be changed (and that will require the unanimous agreement of all the LLP members).

Many LLPs have excluded s459 so as to avoid giving disgruntled members the power to disrupt the LLP with any petition. But, smaller firms, in particular, should consider whether the exclusion of s495 and s994 is a good thing. Such firms may find themselves in a situation where the only means of breaking the deadlock is an application to the court for a ‘just and equitable’ winding up. That is likely to be more complicated, and it will also have the disadvantage of being heard in public (because it cannot be subject to a confidential arbitration). Instead, it may be better to have extensive dispute resolution clauses within the LLP agreement, which are wide enough to cover the sort of issues that would be raised by an ‘unfair prejudice’ petition under s459 or s994. Source: Herbert Smith.