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Court of Chancery Dissolves Limited Partnership Upon Finding General Partner Unable To Achieve Its Business Purpose

GMF ELCM Fund L.P. v. ELCM HCRE GP LLC, C.A. No. 2018-0840-SG (Del. Ch. Aug. 7, 2019).

The equitable remedy of dissolution is extraordinary.  Given the extraordinary record before it, and the abundance of evidence that the general partner could not operate the business, the Court granted plaintiffs’ petition for dissolution.

Plaintiffs sought dissolution of ELCM Healthcare Real Estate Fund LP (“HCRE”), which indirectly owned senior care facilities in multiple states.  Many of those facilities or related facilities were involved in regulatory or judicial actions across several states; several had been placed under the control of receivers.  The litigation in the Court of Chancery was no less troubled; the Court held the key individual defendant (the general partner’s principal) in civil contempt for failure to appear at a rule to show cause hearing, for continued lack of cooperation with the interim receiver, and for continued noncompliance with the Court’s orders, and ordered the defendant to pay certain of plaintiffs’ attorneys fees.  Subsequently, that defendant missed additional deadlines, and ultimately dismissed his counsel and was forced to proceed pro se.

The Court noted that HCRE’s business purpose was investing in and operating nursing homes.  The Court concluded that the general partner and its principal had shown no ability to resume operation of the remnants of the business or to invest in additional enterprises, particularly given evidence of manifestly unsatisfactory business practices by the individual defendant, his manifest unwillingness to cooperate with others in the running of the businesses, and his ongoing health issues.  Coupled with the various parallel actions in other states that had placed control of facilities in others’ hands, the evidence in the Chancery action led the Court to conclude that the business no longer could be run, and instead must be dissolved and liquidated to preserve what value did remain.

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