In a significant legal victory for activist investor Paul Singer, a Delaware court has ordered the liquidation of an oil and gas fund managed by Texas-based Stronghold Investment Management. The ruling marks the latest chapter in a protracted dispute between the two financial firms over management fees and the timely sale of assets.
Court Finds Stronghold in Breach of Settlement
Delaware Chancery Court Judge Bonnie David ruled on Friday that Stronghold had failed to honour a previous settlement agreement with Elliott Investment Management Inc. The core issue was Stronghold's inability to sell all assets linked to Elliott's investment by agreed-upon deadlines, which included the end of 2023 with a potential extension through 2024. The judge explicitly stated that the prior pact "does not permit Stronghold to delay all asset sales indefinitely."
The legal battle began when Elliott filed a lawsuit in September, accusing its former investment partner of two main grievances:
- Charging excessive and unjustified expenses.
- Breaching its contractual duty by refusing to liquidate the specific partnerships, known as Fund II.
Stronghold has consistently denied these allegations, countering that it provided strong returns for Elliott and that any forced liquidation would negatively impact around 100 other investors by necessitating fire sales at discounted prices.
A Partnership Soured Over Time
The relationship between Elliott and Stronghold, which began positively in 2017 with investments into companies dealing in oil and gas interests, deteriorated sharply by 2022. The breakdown led to a settlement agreement that was intended to resolve their differences amicably. However, the failure to adhere to the asset sale timeline outlined in that agreement prompted Elliott to return to court, resulting in the current ruling.
Judge David has now directed both parties to collaborate on a formal proposal for winding down the two partnerships that contain Elliott's capital. This process will determine the method and timeline for the fund's liquidation.
Implications and Next Steps
The court's decision is a clear win for Elliott's strategy, enforcing its demand for liquidity from the investment. However, Stronghold has signaled its intention to challenge the verdict. An attorney for the Texas firm indicated plans to seek an immediate appeal, suggesting the legal fight may continue.
The case highlights the complex tensions that can arise between activist investors seeking short-to-medium-term returns and fund managers executing longer-term strategies. For the other investors in the fund, the court-ordered liquidation raises concerns about the potential valuation and timing of asset sales, as warned by Stronghold. The outcome will be closely watched within the private equity and energy investment sectors for its precedent on enforcing settlement terms and fund governance.
