Clifford Chance
Another Lesson from the Delaware Chancery Court on Process in Related Party Transactions
5 May 2015
The Delaware Chancery Court recently held the general partner of a limited partnership liable for $171 million in damages for causing the limited partnership to overpay for assets it purchased from the parent of the general partner. The Court’s decision illustrates that:
- Delaware law allows the organizational documents of "alternative entities" (limited partnerships and limited liability companies) to eliminate common law fiduciary duties. But even when the contractual provisions that replace fiduciary obligations appear to impose only minimal requirements on those who control the entity, failure to properly understand and carefully follow those requirements and instead simply "going through the motions" of compliance can have calamitous consequences.
- The conduct of a financial advisor in an M&A transaction is always potentially subject to intense judicial scrutiny, even when the claims before the Court do not directly implicate the advisor’s conduct. Financial advisors who take a relaxed approach in situations that appear routine or low-risk sometimes can find themselves exposed at least to unpleasant criticism, and sometimes to financial exposure.
