Executive Summary
In a recent post-trial memorandum opinion,1 the Delaware Court of Chancery ordered specific performance of capital calls issued under a fund’s limited partnership agreement, reinforcing that capital commitments are enforceable as contractual obligations when clearly documented in a fund’s governing documents and subscription agreements. With one narrow exception tied to an express financing contingency, the court compelled limited partners to fund outstanding capital calls as provided in the partnership agreement. The court’s decision underscores two key principles in fund finance transactions:
- An investor’s capital commitment must be clearly and affirmatively established in the partnership agreement and/or subscription documents to be enforceable.
- Courts will enforce capital calls strictly based on contract law and the partnership agreement as written.
Relevant Facts
The dispute arose after the principal limited partners in ATP Life Science Ventures, L.P., a Cayman Islands exempted limited partnership (the “Fund”), ceased funding capital calls, asserting that their aggregate capital commitments had already been fully satisfied. The Fund’s general partner, ATP III GP, Ltd. (the “General Partner”), issued capital calls to fund operating expenses and investments based upon previously approved budgets. The General Partner asserted that any funding freezes could jeopardize the solvency and viability of the Fund’s portfolio companies.2
The Fund’s partnership agreement capped capital calls at each limited partner’s “Contingent Subscription” and permitted calls only for enumerated purposes, including investments with approved budgets, fees, and partnership expenses. Over time, the partnership agreement was amended many times to reallocate investments among pools and segregate certain assets. Although in one amendment it could be inferred that the parties intended to increase the capital commitments, the amendment did not expressly specify an amount for such increase and no new subscription documents were executed to that effect (unlike previous increases).