Guidelines for winding up of AIFs with respect to retention of proceeds and ‘Inoperative Fund’ status
Summary
This circular amends the winding up process for Alternative Investment Funds by allowing the retention of liquidation proceeds beyond the permissible fund life under specific conditions. It establishes a framework for tagging funds as 'Inoperative' to facilitate registration surrender while pending liabilities are resolved. The guidelines also extend these provisions to Venture Capital Funds registered under the 1996 regulations. This section details the specific financial data and status updates required for an Alternative Investment Fund (AIF) seeking 'Inoperative Fund' status, including liquidation proceeds and retained amounts. It mandates formal undertakings from both the AIF Manager and the Trustee or Board of Directors to confirm the bona fide nature of the application and compliance with regulatory constraints. Additionally, it outlines exemptions from various reporting and operational requirements and prescribes the format for annual retention status reports. This section details the reporting requirements for retained monies, including anticipated litigation, tax demands, and operational expenses. It mandates the disclosure of total retained amounts, distributions to inve
Text
AIFs/schemes of AIFs may retain liquidation proceeds beyond the liquidation period or dissolution period, subject to satisfying at least one of the following conditions – Demonstrable receipt of a litigation notice or demand... Consent obtained from at least seventy-five percent of the investors... Substantiation of amounts retained for meeting residual winding up related operational expenses...
In cases where monies are being retained on account of anticipated liabilities as specified in paragraph 3.2 above, the manager of AIF shall disclose the amount being retained and estimated time period for which it is proposed to be retained to the investors of the fund while seeking their consent for retention.
In cases where monies are being retained for meeting residual winding up related operational expenses as specified in paragraph 3.3 above, the time period for such retention shall not exceed three years from the end of permissible fund life of the AIF/scheme of AIF.
All monies retained in line with conditions at paragraph 3 above shall be invested in accordance with Regulation 15(1)(f) of the AIF Regulations.
An AIF having one or more schemes with retained monies as specified in paragraph 3 above and intending to surrender its registration, may apply for obtaining the ‘Inoperative Fund’ status. The application shall be submitted to SEBI in the format as specified in Annexure A, by emailing to inoperativeaif@sebi.gov.in.
An AIF whose scheme(s) have not retained any monies beyond the permissible fund life, but intending to continue with the registration solely in anticipation of a favourable outcome of a pending litigation, may also apply for obtaining the ‘Inoperative Fund’ status.
Upon approval of the aforesaid application, the applicant AIF will be tagged as ‘Inoperative Fund’.
Such Inoperative Fund shall apply to SEBI for surrender of its certificate of registration only after the liabilities are satisfied and the pending retained monies are distributed to the investors in all its schemes.
The monies retained by scheme(s) of such AIF in terms of paragraph 3 above, shall be invested in accordance with Regulation 15(1)(f) of the AIF Regulations;
No new scheme shall be launched under the AIF; and,
No management fees shall be charged in respect of any of its scheme(s).
The regulatory requirements as specified in Annexure B shall not be applicable to AIFs tagged as ‘Inoperative Funds’.
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Source: SecMarx — Guidelines for winding up of AIFs with respect to retention of proceeds and ‘Inoperative Fund’ status. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.