Delaware court flags sale‑process risks

A Delaware judge just let a lawsuit move forward over a fund sale that swapped a diversified portfolio for one buyer’s illiquid securities, even though the fund’s own policy barred putting more than 25% of assets into a single issuer. The opinion came from Vice Chancellor J. Travis Laster on March 31, 2026, in Young Women’s Christian Association of Rochester & Monroe County v. Hatteras Funds. (courts.delaware.gov) The case is still at the pleading stage, which means the court did not decide who ultimately wins. The ruling says the plaintiff alleged enough specific facts for claims against the investment manager, its controller, directors, and the buyer to continue. (courts.delaware.gov) The fund at the center of the case used a “master-feeder” setup, which is a two-layer structure where feeder funds collect money from investors and push it into one main pool. The main pool here was Hatteras Master Fund, a Delaware limited partnership that invested through a fund-of-funds strategy. (courts.delaware.gov) Its governing documents mattered because they said the directors owed the same fiduciary duties as directors of a Delaware corporation. That gave the court a familiar yardstick for judging loyalty, care, conflicts, and disclosure. (courts.delaware.gov) The alleged problem started with liquidity pressure, which is the corporate version of needing cash fast while most of your money is locked in hard-to-sell assets. According to the court’s description of the complaint, the board approved an asset sale to address that pressure. (friedfrank.com) But the sale allegedly solved one problem by creating a bigger one. The complaint says the fund traded its diversified holdings for securities issued by Beneficient, leaving the fund concentrated in a single, troubled buyer and plausibly violating the diversification policy. (friedfrank.com) (courts.delaware.gov) The opinion also focuses on what happened after the deal closed. The court said it was reasonably inferable that the defendants considered dissolving the fund as a second step, then did not pursue that plan and did not tell limited partners. (friedfrank.com) Then there was the fee stream. The court said the complaint supported an inference that the investment manager kept charging the same 1% management fee after the sale, even though the fund allegedly held only one asset and the manager allegedly did little or nothing to manage it. (friedfrank.com) The buyer did not get an automatic pass just because it sat on the other side of the table. The court said Beneficient could face an aiding-and-abetting claim because the complaint alleged it offered support for efforts to launch new funds, which could have created a conflict for the seller-side decision makers. (friedfrank.com) That part lines up with a narrower Delaware rule the opinion discussed: an outside buyer can be exposed if it helps create the conflict that bends the sale process. Delaware Supreme Court cases like Mindbody in 2024 and Columbia Pipeline set a high bar, but not a zero bar. (friedfrank.com) The thread running through the opinion is process, not price alone. A board can face trouble if the record shows weak conflict controls, missing disclosure to investors, or a deal path that ignores the fund’s own rules even before anyone proves final damages. (courts.delaware.gov) (friedfrank.com)