The High Court has recently delivered a judgement addressing a complex dispute over property ownership and the validity of past corporate transactions.
Facts:
HRP Complete Solutions (Limited Liability Partnership) LLP (the old LLP), incorporated in 2014, was the beneficial owner of three properties. The old LLP had two members, Miss Ross and Mr. Phillips, who were directors and equal shareholders. There is also an apparent written resolution of the old company – which is disputed – dated 15 January 2014, for 100 shares in the old company to be held as follows: 95 by Mr. Phillips, 3 by Miss Ross, 1 by Janice Phillips (the mother of Mr. Phillips), and 1 by Faye Phillips (his former wife).
On 14 August 2014, there was a declaration of trust regarding one of the properties to be held on trust for the old LLP. Other declarations of trust followed, declaring that the properties were held on trust for the old LLP.
The relationship between Mr. Phillips and Miss Ross sadly ended in March 2015 with Mr. Phillips moving out of the family home. On 11 February 2015, forms were submitted to Companies House to update the register and declare the share dilution. The appointment of the old company as a member of the
Old LLP apparently was agreed on 23 October 2014. HRP Complete Solutions (Kent) LLP (the new LLP) was incorporated in February 2015 and was solely owned by Mr. Philips. On 31 October 2015, there was a declaration of trust in favour of the new LLP.
In November 2015, Miss Ross made a complaint of fraud against Mr. Phillips to the police. Miss Ross successfully obtained a County Court Order in July 2022 to revive the old LLP by restoring it to the register. Ms. Ross has brought a derivative claim on behalf of the old LLP, arguing that the old LLP remains the beneficial owner, despite the declaration.
Decision:
The High Court ruled that the properties were held on trust for the old LLP and their sale would be a matter of winding up that company. The Court first considered the validity of the Declaration of Trust made on 31 October 2015. Regulation 7(6) of the Limited Liability Partnerships Regulations (LLPR) 2001 stipulates that any change in the nature of an LLP's business requires the unanimous consent of all members, unless a specific LLP agreement states otherwise. The Judge found that the declaration, which effectively stripped the old LLP of "all, or virtually all of its assets" (i.e., the properties), did indeed represent a change in the nature of the old LLP's business. This was further evidenced by the old LLP subsequently being struck off and dissolved. Crucially, Miss Ross had not consented to this declaration, meaning it lacked the required unanimity.
Mr. Phillips claimed that a comprehensive, written, and signed LLP agreement existed, which would have overridden the default unanimity rule. However, the Judge found no credible evidence of such an agreement.
Even if unanimous consent was not required, the Judge stated he would still have found the declaration invalid because it lacked even majority consent, as the purported appointment of the old company as a third member of the old LLP was not valid.
Implications:
This case, while specific to a dispute over property ownership within LLPs, has several broader implications for company law and litigation practice. The judgement strongly reinforces Regulation 7(6) of the LLPR 2001. Any action that constitutes a "change in the nature of the business" of an LLP, especially one that strips out all or virtually all assets and leads to its effective cessation, requires the unanimous consent of all members. This means minority members have significant protection against unilateral actions that fundamentally alter the LLP's purpose or asset base.
The ruling highlights the peril of relying on unwritten or undocumented agreements. Mr. Phillips's failure to produce a signed, comprehensive LLP agreement to displace the default statutory rules was fatal to his defence.