Steven Mizel Roth IRA v. Laurus U.S. Fund, L.P., C.A. 5566-VCN (Del. Ch. Feb. 25, 2011), read opinion here. This Court of Chancery opinion rejected a request to dissolve a limited partnership and refused to appoint a receiver in the context of an investment fund that was in liquidation mode but was not dissolved nor was it winding up as that term in used in the statute.
The limited partner of a limited partnership sought to force a dissolution of the LP that had invested most of its assets in an investment fund based in the Cayman Islands. The plaintiff filed a summary judgment motion based on 6 Del. C. Section 17-802 and the defendant filed a competing motion to dismiss. The usefulness of this case extends also to litigation involving the attempted dissolution of LLCs to the extent that the section involved is virtually identical to its counterpart in the LLC statute and the Delaware Court of Chancery often applies almost interchangeably the reasoning of decisions involving the counterparts of this section in both statutes.
The operative phrase in Section 17-802 that one must satisfy in order to convince the court to dissolve the LP is "… whether it is no longer reasonably practicable to carry on the business on the LP in accordance with its limited partnership agreement". As the Court emphasized, the test is whether it is "reasonably practicable" as opposed to whether it is "impossible" to carry on the business. See cases cited at footnotes 36 to 39. This exacting standard was not sufficiently pled in the complaint nor was it evident in the limited record before the Court. Even if the fund were in liquidation mode, it was still passively investing in accordance with its partnership agreement, and was thus still able to carry on its business purpose.
The request for a receiver was likewise found to be unwarranted. The Court distinguished between a "liquidating trustee" and a "receiver". Citing to Section 17-101(10) of the Delaware LP Act, the Court noted that a liquidating trustee carries out the winding up of a limited partnership but the winding up process cannot occur prior to the dissolution–which had not yet occurred for the LP in this matter. See footnote 56 (quoting from a case that describes the three-step process as: (i) dissolution; (ii) winding up; and finally (iii) termination of a partnership.)
Moreover, the Court explained that Section 17-805 only allows the Court to appoint a receiver in "narrow circumstances". See footnote 59. Compare, Hon. J. Travis Laster, The Chancery Receivership: Alive and Well, The Delaware Lawyer, Vol. 28, No. 3. at 12 (2010)(discussing, in a different context, the general equitable powers of the Court of Chancery to appoint receivers.) In the end, the Court granted the motion to dismiss pursuant to Rule 12(b)(6).