Background
A private equity fund (PEF) rests on trust between the limited partners (LPs) who provide the capital and the general partner (GP) who manages the fund. At one fund, after the GP had generated substantial losses over several years and been fined for violations of the Financial Investment Services and Capital Markets Act, the LPs removed the GP by special resolution of the partners' meeting. The GP then applied for a provisional injunction confirming its status, arguing that "even if removed, the status of unlimited liability partner remains." Changchun represented the LPs.
The Issue — Is an Article Providing for "Automatic Withdrawal on Removal" Valid?
The articles of association provided that "if the GP is removed, it withdraws as unlimited liability partner on the date of that resolution." The GP argued that this was a void provision circumventing "expulsion" (Commercial Act art. 220), which requires strict procedures including a court judgment.
How Changchun Helped
Changchun (attorney Donghwan Shin) argued for the validity of the article, ① making clear that this was not "expulsion" under article 220 of the Commercial Act but automatic withdrawal on "the occurrence of a ground specified in the articles of association" under article 218(1); ② noting that the Commercial Act treats "expulsion" and "grounds for withdrawal under the articles" as distinct causes of withdrawal; and ③ pointing out that party autonomy is broadly recognized in the internal relations of a limited partnership, so that grounds for withdrawal may be fixed in the articles.
The court dismissed the GP's application for a provisional injunction (judgment for our clients). It is a significant decision clarifying the interpretation of a private equity fund's articles of association and the principle of party autonomy. (Outcomes may differ depending on the facts of each matter.)