India's SEBI eases AIF winding-up norms, allows retention of proceeds
AIF managers must secure 75% investor consent or substantiation to retain liquidation proceeds
Change
India's Securities and Exchange Board (SEBI) has eased winding-up rules for Alternative Investment Funds (AIFs), allowing retention of liquidation proceeds beyond fund life only when litigation or tax notices exist, or when at least 75% of investors by value consent or retained amounts are substantiated for operational expenses (operational retention capped at three years), and by creating a new 'inoperative funds' category with lighter compliance norms.
Why it matters
Inoperative funds are subject to reduced obligations: they are exempt from periodic filings, private placement memorandum updates and performance-benchmarking requirements. SEBI retains regulatory oversight for these funds despite the exemptions, so eligibility for lighter norms depends on meeting the prescribed conditions.
Implications
- — AIF managers in India must obtain at least 75% investor consent by value or produce substantiation of tax or litigation liabilities before retaining liquidation proceeds — failing to meet these conditions requires distribution of proceeds and achievement of a nil bank balance to surrender registration.
- — Fund compliance teams and trustees must record and substantiate any amounts retained for operational expenses and end such retention within three years of the fund's life end — amounts held beyond that three-year cap cannot be retained under SEBI's rule.
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Source
View on The Hindu