21st December, 2011
Investment Partners Entitled to View Documents
Is an investor in a co-investment venture that is owned and managed by connected companies entitled to find out what has happened to its money beyond what is reported to it? This question was raised in a recent case in the High Court. This case is also relevant to all partners in general partnership or limited partnerships.
The case concerned an investment partnership, Colyzeo Investors II LP, a limited partnership in English law (under the 1907 Limited Partnership Act) which was set up to co-invest with Colony Capital LLC and its affiliates. A complicated arrangement of partnerships and companies was established in order to manage the investments – real estate and related assets, and ventures in Europe.
Such a structure is not unusual for this type of investment and the status of the individual investors was that of limited partner, with the overall management being assumed by a general partner, whose liabilities were unlimited. In this case, the general partner was Colyzeo Capital II LLP, a limited liability partnership in English law.
Spanish company Inversiones Frieira SL was the largest investor in the partnership and, with its smaller sister company, handed over some €100 million out of a total of €854 million committed by investors. Unfortunately, as a consequence of major investments in two projects proving unsuccessful, including one involving French supermarket giant Carrefour, the venture lost about half of its investment funds.
Following these losses, in July 2009 Inversiones requested access to documents relating to the failed investments. This request was granted over the following months, with more and more detailed information being sought until, in March 2010, the company was told that it only had access rights to the financial records and books of the partnership.
The High Court held that this view was wrong. The investors were legal partners in the venture who had put capital at risk in the business. As such, any partners, limited or not, had a right to disclosure by the co-partner of all matters relating to the partnership dealings and transactions.
It was also argued that Inversiones only wanted access to detailed investment documents in order to mount litigation against Colyzeo Investors. The judge held, however, that because Inversiones had a statutory right to inspect the documents, its motive for so doing was irrelevant.
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