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Court of Chancery Explains Distribution Rights Issues

Posted In LP Agreements

Schuss v. Penfield Partners LLP, C.A. 3132-VCP (Del. Ch. June 13, 2008)

This decision explains how distribution rights for a withdrawing partner may be determined and points out that ambiguous language in the partnership agreement may lead to uncertainty. This was particularly important here as the withdrawing partner was given an in-kind distribution of these hedge funds securities after they had declined in value in the period after the date for determining the partner's share and the actual distribution date. This may become an important issue when the market is declining.

The Court also held that the plaintiff had stated a claim for breach of fiduciary duty by alleging the controlling general partner had selected the assets to go to the departing partner with the intent of hurting his interest.