SEBI Issues New Guidelines for AIFs To Enhance Clarity in Dissolution and Liquidation Processes
Moneylife Digital Team 10 July 2024
Securities and Exchange Board of India (SEBI) has introduced new guidelines to address the challenges faced by alternative investment funds (AIFs) during their dissolution and liquidation periods. These guidelines will provide clarity and structure to the processes, ensuring better management of unliquidated investments and facilitating in-specie distribution of assets, the market regulator says.
The SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024, along with subsequent circulars, outline the requirements and conditions that AIFs must adhere to.
SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024, notified on 25 April 2024, via circular provided flexibility for AIF schemes to opt for a dissolution period. This period helps manage unliquidated investments that are difficult to sell due to lack of liquidity. Subsequently, the SEBI circular specifies the modalities for schemes of AIFs entering into the dissolution period.
As per Regulation 29B(2) of the SEBI (AIF) Regulations, 2012 (AIF Regulations), a scheme of an AIF entering into the dissolution period must file an information memorandum with SEBI through a merchant banker in a manner specified by SEBI. The information memorandum must be submitted to SEBI before the expiry of the liquidation period or additional liquidation period of the scheme, as applicable.
Under Regulation 29(9A) of the AIF Regulations, schemes whose liquidation period has expired or expires within three months from the notification date, i.e., on or before 24 July 2024, may be granted an additional liquidation period, subject to SEBI's conditions. Schemes intending to avail the additional or fresh liquidation period must submit the required information to SEBI for the grant of the additional liquidation period.
Further, under Regulation 29(9) of the AIF Regulations and related SEBI circulars, the in-specie distribution of unliquidated investments during liquidation, other than mandatory distributions, requires approval from at least 75% of investors by value. The AIF's manager, trustee, and key management personnel must ensure compliance and include it in the 'compliance test report', SEBI says.
The SEBI circular on AIF is effective immediately.
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