Delaware Chancery Court Enforces Capital Calls Based on Subscription Documents and Contract Terms in a Partnership Agreement

Executive Summary

In a recent post-trial memorandum opinion,¹ the Delaware Court of Chancery ordered specific performance of capital calls issued under a fund’s limited partnership agreement, reinforcing that capital commitments are enforceable as contractual obligations when clearly documented in a fund’s governing documents and subscription agreements. With one narrow exception tied to an express financing contingency, the court compelled limited partners to fund outstanding capital calls as provided in the partnership agreement. The court’s decision underscores two key principles in fund finance transactions:

• An investor’s capital commitment must be clearly and affirmatively established in the partnership agreement and/or subscription documents to be enforceable.

• Courts will enforce capital calls strictly based on contract law and the partnership agreement as written.

Relevant Facts

The dispute arose after the principal limited partners in ATP Life Science Ventures, L.P., a Cayman Islands exempted limited partnership (the “Fund”), ceased funding capital calls, asserting that their aggregate capital commitments had already been fully satisfied. The Fund’s general partner, ATP III GP, Ltd. (the “General Partner”), issued capital calls to fund operating expenses and investments based upon previously approved budgets. The General Partner asserted that any funding freezes could jeopardize the solvency and viability of the Fund’s portfolio companies.²

The Fund’s partnership agreement capped capital calls at each limited partner’s “Contingent Subscription” and permitted calls only for enumerated purposes, including investments with approved budgets, fees, and partnership expenses. Over time, the partnership agreement was amended many times to reallocate investments among pools and segregate certain assets. Although in one amendment it could be inferred that the parties intended to increase the capital commitments, the amendment did not expressly specify an amount for such increase and no new subscription documents were executed to that effect (unlike previous increases).

The Court’s Analysis

Clear Documentation of Capital Commitments is Required

Notably, the court refused to find that the limited partners had increased their aggregate capital commitment beyond the amount clearly stated in their prior subscription agreements. Although amendments and communications indicated an expectation of additional funding capacity, the court required clear, definitive contractual language to increase a capital commitment, particularly in this case where the General Partner sought specific performance.

Because no amendment had unambiguously increased the “Contingent Subscription”—and no new or revised subscription agreements were executed—the court capped the enforceable obligation at the previously documented commitment amount, notwithstanding the fact that substantial additional contributions had already been made by the limited partners.

Contractual Language Governs Enforcement of Capital Calls

Applying Cayman Islands contract law, the court emphasized that capital calls are enforceable only to the extent authorized by the partnership agreement’s plain language. The court rejected attempts to read implied conditions, subjective expectations, or investment-level “milestones” into the funding obligation where those concepts were not expressly set forth in the Fund’s governing documents.

The court held that the challenged capital calls—to be used to fund six months of operating expenses under investments with previously approved budgets—fell squarely within the permitted purposes of the partnership agreement and, therefore, constituted valid contractual obligations entitled to specific performance.

Key Takeaways for Fund Finance Transactions

The decision underscores the following important reminders for investment funds, sponsors, and subscription facility lenders:

• Capital commitments must be clearly documented. A fund’s partnership agreement and all investor subscription documents should be reviewed to confirm the existence of capital commitments. Increases in commitment amounts must be expressly reflected in partnership agreements and/or subscription documents. Informal understandings, implied expectations, or structural reallocations are insufficient. 

• Capital calls are enforceable contractual obligations. Courts will compel funding of capital contributions where a partnership agreement clearly authorizes the capital call and the stated purpose falls within its permitted uses.

• Courts will not infer conditions precedent. Investment milestones or diligence concepts appearing in the offering materials do not limit funding obligations unless expressly incorporated into the fund’s governing documents.

• Express contingencies cut both ways. Where a partnership agreement conditions funding on a specific event, courts will enforce that condition strictly.

• Specific performance is a real remedy. Particularly in time-sensitive investment contexts, courts will order limited partners to fund capital calls where damages are inadequate and the governing documents support equitable relief.

The decision discussed in this legal update reflects the analysis of a single court addressing a specific factual record and limited partnership agreement, and so may not be binding on other courts reviewing different facts and governing agreements. However, the reasoning and analytical framework provide a useful road map for how similar issues may be evaluated in any future cases.

 

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¹ ATP III GP, Ltd. v. Rigmora Biotech Inv. One LP, C.A. No. 2025-0607-KSJM (Del. Ch. Dec. 5, 2025).

² Following the Delaware Court of Chancery’s decision to enforce the disputed capital calls, the Fund and certain of its portfolio companies filed voluntary petitions for Chapter 11 protection in the US Bankruptcy Court for the District of Delaware in an effort to halt winding-up proceedings initiated by the principal limited partners in the Cayman Islands in response to the action filed in the Delaware Court of Chancery.