In circumstances where a breach is continuing, a formal notice may be issued by the GP to the defaulting LP, requiring the outstanding payment by a specified date and outlining that failure to meet the terms of the notice will result in a formal default. These “cure” arrangements are very important for GPs and LPs alike given the significant consequences for the LP arising from a breach of obligations imposed under the LPA. Notwithstanding the general ability of the GP to rely on the default provisions of the LPA, many LPAs will provide the GP a degree of flexibility to provide an LP with additional time to remedy any breach of obligation (sometimes subject to payment of additional interest). Are LPs given any chance to remedy a breach before it becomes a “default”? In keeping with provisions seen in limited partnership structures in other jurisdictions, the ILP Act provides that the remedies or consequences available to the GP under the LPA will not be unenforceable or rendered inapplicable solely because they are penal in nature.
If an LP fails to fulfil one of its obligation, that may constitute a breach of the LPA provisions and potentially a default. However, given the contractual nature of an ILP there may be certain other terms or requirements specified in the LPA which impose obligations on LPs. The most common form of default in respect of an LP in an ILP will arise in circumstances where the relevant LP fails to meet a capital call or drawdown notice issued by the GP. GPs may utilise multiple remedies against defaulting LPs.Comprehensive remedies are available to GPs for defaults by LPs including forfeiture.
Any “cure” periods permitted must be exercised taking into account the interests of non-defaulting LPs.“Cure” periods for breach of LP obligations are permitted at the discretion of the GP.Under the ILP Act, the penal nature of default remedies available to a GP will not mean they are unenforceable or inapplicable.LPs should be interested in ensuring the GP has strong remedial powers under the LPA for defaults by an LP.The LPA contains provisions relating to the consequences for default by LPs of their obligations.Defaults by LPs in an ILP can have a significant impact on the ILP itself and on the non-defaulting LPs.A more detailed analysis of the ILP is available here. The LPA itself will typically include provisions which are considered to be “industry standard” in relation to defaults by LPs which can be availed of by the GPs. In this key features document, we briefly consider the consequences for limited partners (“ LPs”) who fail to uphold the obligations imposed on them under the terms of the Limited Partnership Agreement (the “ LPA”).
The Irish investment limited partnership (the “ ILP”), now re-shaped as a flexible fund investment vehicle following amendments made to the existing Investment Limited Partnership Act, 1994 (the “ ILP Act”), is expected to become the fund structure of choice for many international investment managers, particularly those in the private equity and real assets sectors.
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