Private Equity Exits: When Might Seeking Term-End Liquidity Create A Conflict?

Overview and Practical Key Takeaways

Nominee directors are central to private equity: significant investors in a portfolio company expect to have strategic input into the company's business.

But nominee directors can also face potential conflicts of interest in certain circumstances. The recent ruling of the Delaware Court of Chancery in Manti Holdings provides an example in the context of the sale of a portfolio company near the end of a private equity fund's term.¹ We explore the ruling and highlight what nominee directors in Canadian portfolio companies should know.

Our key practical takeaways include:

• The ruling sets a high bar for when a fund seeking to liquidate its interest in a portfolio company to timely distribute funds to its investors might create a potential conflict of interest for a nominee director of the fund on the company's board.