Derivative Actions In Private Equity? Recent Caselaw From BC And Ontario

Overview

In our previous bulletin, "Fiduciary Duties in Private Equity: What Sponsors and LPs Should Know" we explored the question of fiduciary duties owed in the private equity (PE) context, and specifically as between general partners (GPs) and limited partners (LPs) within a PE fund.

We now move to recent caselaw addressing a related question: when might LPs be able to bring a derivative action on behalf of the limited partnership against the corporate GP and/or the GP's directors for a breach of fiduciary duty?

The Disputes

In Extreme Venture Partners Fund I LP v Varma, the subject of our previous bulletin, a derivative action was not necessary. The two directors who had breached their fiduciary duties to the limited partnership had left the GP and the GP was able to directly claim against them on its own behalf and on behalf of the limited partnership.