Corporate Law Update

• A member of an LLP was entitled to act unilaterally in expelling the only other member of the LLP for “serious and persistent” breaches of the LLP agreement
• The FCA provides an update on its next steps in the reform of the UK’s securities prospectus and public offers regime

A member of an LLP was entitled to expel the only other member

The High Court has held that a member of a limited liability partnership (LLP) was entitled to act alone in expelling the only other member of the LLP for serious and persistent breaches of the LLP agreement.

THJ Systems Ltd v Sheridan [2023] EWHC 927 (Ch) concerned a joint venture between Mr Mitchell, a software developer, and Mr Sheridan, a former options trader turned mentoring services provider.

The purpose of the venture was to integrate an options trading software platform developed by Mr Mitchell into presentations and educational materials designed by Mr Sheridan and his business.

The LLP agreement imposed various obligations on Mr Sheridan to promote the platform and include certain information and copyright notices in his educational materials, as well as to act in good faith towards Mr Mitchell.

Mr Mitchell alleged that Mr Sheridan had breached these duties in various respects and purported to expel Mr Sheridan from the LLP on the grounds of “serious and persistent breach” of the LLP agreement.

The court analysed whether, in each case, Mr Sheridan had committed a “serious” or a “persistent” breach, including what these terms meant in the context of the LLP agreement. It also considered whether the expulsion notice was invalid on the basis that Mr Mitchell had acted alone, rather than through a decision of the LLP’s members.

The judge ultimately concluded that, of the numerous alleged breaches, only one had amounted to a “serious” and “persistent” breach, but that this justified Mr Sheridan’s expulsion.

You can read more about the judgment in our separate in-depth piece.

FCA provides update on changes to UK’s prospectus regime

The Financial Conduct Authority (FCA) has published an update on proposed changes to the regulatory regime for making a public offer of securities in the UK and publishing a prospectus.

As we mentioned in our previous in-depth piece, the Government has published a draft illustrative statutory instrument, to be made under the Financial Services and Markets Act 2000, setting out how the reformed regime will work.

In broad terms, under the reformed regime, offering securities to the public would be prohibited unless the offer benefits from one or more “exceptions”. Many of these mirror the current exemptions from publishing a prospectus under the UK’s current regime, although some are new or have been modified.

The exclusions include where a company is proposing to admit securities to a securities exchange. In those circumstances, the FCA would have power:

• for regulated markets (such as the London Stock Exchange Main Market), to require the company to publish a prospectus as a condition to admission; and
• for so-called primary MTFs (such as AIM), to require the exchange operator to make publication of a prospectus a condition to admission.

The FCA has said it will be considering various issues when making future rules. These include whether or not to require a prospectus for secondary capital raises, how to include forward-looking information in prospectuses and when to require a prospectus for “junior markets”.

The FCA has also said it will be launching a process of engagement and dialogue to seek views on the topic, which will include sessions with key stakeholders, engagement papers with greater details on key issues, online focus groups and requests for written feedback.