The ADIC v. EMG Complaint: A Governance Wake‑Up Call for LPs on Continuation Funds
>> On December 3, 2025, the Abu Dhabi Investment Council (ADIC) made waves by filing a complaint in Delaware Chancery Court against the Energy & Minerals Group (EMG).1 The lawsuit seeks to stay what ADIC describes as a conflicted sale of a fund asset into an EMG-sponsored continuation vehicle (CV).
As we discussed in our recent article on term extensions, distributions across the private equity landscape have slowed significantly.2 For many LPs, that’s not simply a nuisance. Portfolio models often assume return of capital from maturing investments so delays can produce liquidity shortfalls that disrupt cash needs and hinder the ability of LPs to make near-term capital calls across their investments.
Continuation funds, much like term extensions, have become a favored GP tool in this environment, though not without controversy. Of course, CVs can and do serve legitimate purposes, but they are also rife with conflicts of interest since the GP often sits on both sides of the transaction.
Assuming the facts alleged in the complaint are true, they underscore the risks inherent in CV transactions. But they also reveal another critical, and often overlooked, dimension: how GP control of process can push through a conflicted deal. Some of the alleged conduct would, if proven, constitute violations of fiduciary duties or contractual rights; other alleged tactics involved procedural pressure that could have been prevented with stronger governance protections.
In this article, we walk through the salient issues presented by the ADIC complaint, and we highlight where contractual provisions could have strengthened the governance process:
1. Fiduciary Duties. Under Delaware’s Uniform Limited Partnership Act, fiduciary duties can be modified or waived by the terms of the LPA.3 Contractual modifications of fiduciary duties should always be treated with considerable care. But in this case, EMG’s LPA did not waive fiduciary duties.
Nevertheless, the complaint alleges that EMG presented conflicting narratives to different concerned parties. According to the complaint, EMG told the LPAC that the asset at issue had a depressed valuation and no viable prospects for an IPO or M&A exit.
At the same time, EMG allegedly pitched the asset to prospective investors in the CV at a higher valuation and with an optimistic IPO outlook. If true, this divergence suggests EMG placed its own interests above those of the fund, potentially in violation of its duty of loyalty.
2. Fairness Opinion and Price Validation. According to the complaint, the financial adviser’s fairness opinion relied upon information provided by EMG “without independent verification.” The complaint further alleges no third-party diligence was conducted, and that EMG refused to solicit competitive bids. As alleged, the fairness opinion accordingly would have lacked meaningful price validation.
Generally, price should be tested against one or more of (1) an independent valuation; (2) a partial disposition to a third party or an arms-length transaction through a minority stake; or (3) a competitive auction. Don’t be misled by clauses that purport to include all three but are undermined by loopholes:
The Partnership may sell one or more its assets to any such Continuation Fund; provided that the consideration for such sale has been validated pursuant to (a) a valuation by the manager or an independent appraiser, (b) if, at a reasonably contemporaneous time, a third party is selling at least one-third of the same class of interests in such investment, the sale price being consistent with such third party’s sale price, or (c) a competitive auction.4
Since the clause is disjunctive, the GP can rely solely on clause (a), which is a valuation that can be performed by the manager itself with no guarantee of independence or objective market corroboration.
3. Fees and Carry. The complaint alleges that the transaction forced LPs to choose between selling at EMG’s valuation or rolling into the CV and was structured with “the initial value of the shares … fixed” at that reduced figure, effectively resetting EMG’s carry for future upside.
As ILPA confirms, LPs should always have the option to roll into a CV at “status quo.” That means no increase in management fee rate or base and no new or reset to carried interest.5 In short, the GP should in no event use the transaction to re-cut economics in its favor.
4. LPAC Approval. As detailed below, EMG was allegedly able to apply pressure in part because the LPs lacked procedural safeguards. Fortunately, the EMG LPA did require affirmative LPAC approval for conflicted transactions. That’s an essential baseline protection.
Be cautious of language that presumes approval without an affirmative vote. Typically, this takes the form of negative consent as in the example below. But silence should not equal consent.
Unless a Majority-in-Interest objects in writing to such sale within ten (10) Business Days after the General Partner has submitted a memorandum generally describing the transaction and support for such Price Validation to the Limited Partners … 6
5. Advance Notice. EMG allegedly gave the LPAC only 5 business days’ notice of the special meeting and vote. For CV transactions, ILPA recommends that the LPAC should receive at least 10 business days to review the transaction prior to voting.7 That window is critical to allow for meaningful diligence.
6. Advance Provision of Materials. Short notice is one problem. But the notice also allegedly included few details with information delivered piecemeal in the days leading up to the vote. That kind of drip-feed makes proper evaluation nearly impossible.
LPACs should receive a complete disclosure package and agenda at the time notice is given. Anything less undermines the committee’s ability to perform its oversight function.
7. Transparency in Communication. The complaint describes EMG’s approach as a “divide-and-conquer strategy,” with one-off communications to LPAC members and inconsistent information shared across the group. Members were allegedly strongly discouraged from communicating with each other so that EMG could gatekeep information.
As we’ve noted elsewhere, matters brought before the LPAC should be discussed with the full committee, and all members should receive the same information at the same time.8
8. Disclosure. To assess conflicts and fairness, the LPAC needs access to full and accurate information. That includes but is not limited to investment memos, valuation models and market analysis.9
When the LPAC receives materially different information than potential buyers, the integrity of disclosure is fundamentally compromised.
9. In Camera Review. EMG allegedly denied the LPAC’s request for an in-camera session — a private discussion among LPAC members without the GP present. As the provision below demonstrates, well-negotiated LPAs usually feature such a right: At each meeting of the Advisory Board, the members of the Advisory Board shall be permitted to conduct an “in camera” session of such members, without the presence of any representative of the General Partner.10
10. Special Meetings. When the initial vote failed, EMG allegedly declined LPAC requests to reconvene. A well-drafted LPA should give LPAC members the right to call their own meetings, and many do:
The General Partner may call (and shall call if requested by a majority of the members of the Advisory Board) special meetings of the Advisory Board.11
But even when that right exists, keep an eye on logistical gamesmanship. For example:
Any special meeting of the Advisory Board shall be at a location determined by the General Partner.
Without language permitting virtual attendance, the GP can schedule meetings on short notice in a location difficult for some LPAC members to attend.
Key Takeaways
The ADIC complaint isn’t just about a single disputed transaction — it’s a case study, based on the allegations pleaded, in how governance drives outcomes when a GP and its LPs fall out of alignment. The core lesson is clear: good governance can’t wait until a conflict arises; it has to be built into the deal documents from the start. Robust LPAC rights, clear procedures and access to information can be the difference between a fair process and a forced result.
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1 ADIC et al. v. EMG et al., C.A. No. 2025-1389-NAC (Del. Ch. Dec. 3, 2025) (Redacted Public Version).
2 See our article “Term Extensions: Negotiating the Value of Optionality in a Distribution Drought”.
3 6 Del. C. § 17-1101(f).
4 Sourced from an LPA drawn from the European market.
5 ILPA, Continuation Funds: Considerations for Limited Partners and General Partners (May 2023), at 11.
6 See footnote 4.
7 ILPA, Continuation Funds: Considerations for Limited Partners and General Partners (May 2023), at 5.
8 See our article “Maximizing Your LPAC”.
9 Ibid.
10 Sourced from a well-negotiated LPA from the buyout segment.
11 Ibid.
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