Thank You For Submiting Feedback!
The Delaware business combination statute, 8 Del. C. § 203(c), defines "affiliate" as a "person directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person." "Control" is defined, in part, as "the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a person whether through the ownership of stock, by contract or otherwise."
The present case involved a Chapter 11 case, wherein the debtor Asian Yard Partners (AYP) moved for an order pursuant to 11 U.S.C. § 363(b) approving the sale of all its 50% partner interest in CAP Partnership, L.P., a Delaware limited partnership to its affiliate First Lincoln. Competrol Real Estate Limited ("CREL") and NESK Corporation ("NESK"), the two partners owning the other 50% interest objected to the sale on the grounds that the sale was prohibited by the anti-transfer provision of the partnership agreement.
Was the proposed sale prohibited by the anti-transfer provision of the partnership agreement?
The Court held that Section 7.01 of the Partnership Agreement as amended to incorporate Section 8 of the Settlement Agreement, permitted AYP to sell its 50% interest in CAP to its affiliate First Lincoln and First Lincoln will acquire all the partnership interests, including management rights, attendant to such 50% interest. The Court noted that such transfer fell within the Section 7.01 transfer to an affiliate exception: there was no generally prevailing meaning of the term “affiliate,” and many commonly used definitions of "affiliate" were not limited to common ownership control situations. Moreover, the Court averred that First Lincoln was an affiliate as that term was defined in the Delaware General Corporation Law and it was appropriate to apply that law in the instant case. According to the Court, labeling First Lincoln as an affiliate of AYP was not in conflict with the policy reason for partnership anti-transfer provisions.