Michael J. Kendall is a partner and Joseph F. Bernardi, Jr. is counsel at Goodwin Procter LLP. This post is based on a Goodwin Procter publication by Mr. Kendall and Mr. Bernardi, and is part of the Delaware law series; links to other posts in the series are available here.
A recent decision in Delaware illustrates yet another difficulty investors face when using redemption of their stock as a liquidity strategy. In this case, a private equity fund, Oak Hill Capital Partners, and the directors of one of its portfolio companies (both outsiders and those designated by the fund) were sued for breach of fiduciary duty and other claims in connection with the redemption of preferred stock held by the fund. The court’s refusal to dismiss the case creates the potential for a long and expensive court battle and ultimately the possibility of liability for Oak Hill and the directors.
