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CIS 14.3 Termination of a sub-fund of an umbrella ICVC

Explanation of CIS 14.3

CIS 14.3.1G
  1. (1)

    A termination of a sub-fund in accordance with this chapter will require alterations to the ICVC'sinstrument of incorporation and prospectus. The proposed alterations must be notified to the FSA and permitted to take effect in accordance with regulation 21 of the OEIC regulations before the termination can commence. On termination, the assets of the sub-fund will normally be realised, and the shareholders in the sub-fund will receive their respective shares of the proceeds net of liabilities and the expenses of the termination. A sub-fund may also be terminated in connection with a scheme of arrangement. In this case, shareholders in the sub-fund will become entitled to receive units in another regulated collective investment scheme in exchange for their shares in the sub-fund.

  2. (2)

    The steps involved in the termination of a sub-fund are similar to those for the termination of an ICVC, so readers may find the guidance at CIS 14.2.2 G helpful.

Special meanings for CIS 14.3

CIS 14.3.2R
  1. (1)

    In this section (CIS 14.3) references to:

  2. (2)

    shares are references to shares of the class or classes related to the sub-fund to be terminated;

  3. (3)

    shareholders are references to holders of such shares;

  4. (4)

    a resolution or extraordinary resolution are references to such a resolution passed at a meeting of holders of shares of the class or classes referred to in (2);

  5. (5)

    scheme property are references to the scheme property allocated or attributable to the sub-fund to be terminated; and

  6. (6)

    liabilities are references to liabilities of the ICVC allocated or attributable to the sub-fund to be terminated.

When a sub-fund is to be terminated

CIS 14.3.3R
  1. (1)

    A sub-fund must not be terminated:

    1. (a)

      unless and until effect may be given under regulation 21 of the OEIC regulations to proposals to make the alterations to the ICVC'sinstrument of incorporation and prospectus that will be required if the sub-fund is terminated; and

    2. (b)

      unless a statement has been prepared and sent or delivered to the FSA under CIS 14.3.4 R (Solvency statement) and received by the FSA before satisfaction of the condition in (a).

  2. (2)

    Subject to (1) and the subsequent provisions of this section (CIS 14.3), a sub-fund must be terminated under this chapter:

    1. (a)

      if an extraordinary resolution to that effect is passed; or

    2. (b)

      when the period (if any) fixed for the duration of the sub-fund by the instrument of incorporation of the ICVC expires, or any event occurs on the occurrence of which the instrument of incorporation provides that the sub-fund is to be terminated; or

    3. (c)

      on the date stated in any agreement by the FSA to a request from the directors of the ICVC for the termination of the sub-fund.

Solvency statement

CIS 14.3.4R
  1. (1)

    Before a notice is given to the FSA under regulation 21 of the OEIC regulations of the proposal referred to in CIS 14.3.3 R (1)(a), the directors must make a full enquiry into the ICVC's affairs to the extent that they relate to the sub-fund so as to ascertain whether the ICVC will be able to meet its liabilities (including contingent and prospective liabilities).

  2. (2)

    On or before that notice is given, the ACD must prepare a statement, reflecting the results of the enquiry in (1), and either:

    1. (a)

      confirming that the ICVC will be able to meet all liabilities within twelve months of the date of the statement; or

    2. (b)

      stating that the confirmation cannot be given.

  3. (3)

    The statement referred to in (2) must:

    1. (a)

      relate to the ICVC's affairs at a date which must not be more than 28 days before the date on which that notice is given to the FSA; and

    2. (b)

      if there is more than one director, be approved by the board of directors and be signed on their behalf by the ACD and, if it contains the confirmation under (2)(a), by at least one other director if there is one or, if there is no director other than the ACD, be signed by the ACD.

  4. (4)

    A statement which contains the confirmation under (2)(a) must annex a statement signed by the auditor appointed under Schedule 5 to the OEIC regulations to the effect that, in his opinion, the enquiry required by (1) has been properly made and is fairly reflected by the confirmation.

  5. (5)

    The statement referred to in (2) must be sent or delivered to the FSA and a copy sent to the depositary either before, or on, or within the 21 days following, the date on which notice is given to the FSA in accordance with regulation 21 of the OEIC regulations.

  6. (6)

    Termination of a sub-fund commences at the time at which the conditions referred to in CIS 14.3.3 R (1)(a) and CIS 14.3.3 R (1)(b) are both satisfied or, if later, the time determined under CIS 14.3.3 R (2) at which the sub-fund must be terminated.

Consequences of commencement of termination of a sub-fund

CIS 14.3.5R
  1. (1)

    Immediately following the commencement of the termination of a sub-fund:

    1. (a)

      CIS 4 (Single-pricing and dealing) and CIS 5 (Investment and borrowing powers) cease to apply to the shares and to the scheme property;

    2. (b)

      the ICVC must cease to issue and cancel shares;

    3. (c)

      the ACD must cease to sell or redeem shares or to arrange for the issue and cancellation of shares; and

    4. (d)

      no transfer of a share must be registered and no other change to the register of shareholders must be made without the sanction of the directors.

  2. (2)

    If the ACD has not previously notified shareholders of the proposal to terminate the sub-fund, the ACD must, as soon as practicable after the commencement of the termination, give written notice of the commencement to the shareholders.

Manner of termination

CIS 14.3.6R
  1. (1)

    The ACD must, as soon as practicable after the termination of the sub-fund has commenced, cause the scheme property to be realised and the liabilities to be met out of the proceeds.

  2. (2)

    The ACD must give instructions to the depositary how those proceeds (until utilised to meet liabilities or pay distributions to shareholders) must be held. Those instructions must be with a view to the prudent protection of creditors and shareholders against loss.

  3. (3)

    Provided there are sufficient liquid funds in the scheme property available after making adequate provision for the expenses of the termination and the discharge of the liabilities remaining to be discharged, the ACD may arrange for the depositary to make one or more interim distributions out of the funds to the shareholders proportionately to the right to participate in scheme property attached to their respective shares as at the date of the commencement of the termination.

  4. (4)

    When the ACD has caused all the scheme property to be realised and all of the liabilities known to the ACD to be met, the ACD must arrange for the depositary to make a final distribution, on or before the date on which the termination account is sent to shareholders in accordance with CIS 14.3.7 R (5) (Termination account), of the balance remaining (net of a provision for any further expenses of the termination) to the shareholders in the same proportions as provided by (3).

  5. (5)

    Paragraphs (1) to (4) are subject to the terms of any scheme of arrangement sanctioned by an extraordinary resolution passed on or before the commencement of the termination.

  6. (6)

    Where the ICVC and one or more shareholders (other than the ACD) agree, the requirement in (1) to realise the scheme property does not apply to that part of the scheme property which is proportionate to the right to participate in scheme property of that or those shareholders.

  7. (7)

    In the case of (6) the ACD must cause the ICVC to distribute that part of the scheme property in specie to that or those shareholders in proportion to their respective rights to participate, after making such adjustments or retaining such provision as appears to the ACD appropriate for ensuring that that or those shareholders bear the proportion of the liabilities and the expenses of the distribution attributable to his or their shares.

  8. (8)

    Where any sums (including unclaimed distributions) remain standing to the account of the scheme property following tender of payment (whether to a creditor or a shareholder) the ACD must instruct the depositary to retain the sums ("tendered sums") in an account ("unclaimed payments account") separate from any other part of the scheme property.

  9. (9)

    The depositary must, if and when so instructed by the ACD, make a payment out of the unclaimed payments account for the purpose of settling a claim for a tendered sum.

  10. (10)

    Any costs and reasonable expenses of the ACD for investigating a claim and any costs and expenses incurred by the depositary in making a payment out of the unclaimed payments account may be deducted from the payment and retained for its own benefit by the ACD or the depositary or both (as the case may be).

  11. (11)

    The person entitled to any tendered sum is not entitled to any interest in respect of the unclaimed payments account and any interest arising in respect of the unclaimed payments account must be allocated between the continuing sub-funds of the ICVC in accordance with CIS 12.5.3 R (Allocation of scheme property).

  12. (12)

    Amounts standing to the credit of an unclaimed payments account must be excluded from the value of the scheme property and must not be subject to any distribution under the provisions of CIS 14.2.6 R (Manner of winding up), but upon a dissolution of the ICVC under regulation 33 of the OEIC regulations, the depositary must cease to hold those amounts as part of that account and they will become subject to the provisions of CIS 14.2.6 R (9).

Termination account

CIS 14.3.7R
  1. (1)

    As soon as the termination of the sub-fund (including distribution or provision for distribution in accordance with CIS 14.3.6 R (4)) has been completed, the ACD must prepare an account of the termination showing:

    1. (a)

      how it has been conducted; and

    2. (b)

      how the scheme property has been disposed of.

  2. (2)

    The account in (1) must:

    1. (a)

      if there is more than one director, following its approval by the board of directors, be signed on their behalf by the ACD and at least one other director; or

    2. (b)

      if there is no director other than the ACD, be signed by the ACD.

  3. (3)

    Once signed, this account is the "termination account" for the purposes of this chapter.

  4. (4)

    The ACD must ensure that the ICVC's auditor makes a report to the shareholders in respect of the termination account which states the auditor's opinion whether the termination account has been properly prepared for the purpose of (1).

  5. (5)

    Within two months of the termination of the sub-fund being completed, a copy of the termination account and the auditor's report on it must be sent to the FSA and to each person who was a shareholder (or the first named of joint holders) immediately before such completion.

Duty to ascertain liabilities

CIS 14.3.8R
  1. (1)

    The ACD must use all reasonable endeavours to ensure that all the liabilities are discharged before the completion of the termination.

  2. (2)

    The duty in (1) relates to all liabilities of which:

    1. (a)

      the ACD is, or becomes, aware before the completion of the termination; or

    2. (b)

      the ACD would have become aware before the completion of the termination had it used all reasonable endeavours to ascertain the liabilities.

  3. (3)

    If the ACD rejects any claim against the ICVC in respect of a liability in whole or in part, the ACD must immediately send to the claimant written notice of its reasons for doing so.

Reports and accounts

CIS 14.3.9R

The obligations under CIS 9 (Income) and CIS 10 (Reports and accounts) continue in respect of a sub-fund being terminated until the completion of the termination.

Liabilities of the ACD

CIS 14.3.10R
  1. (1)

    The ACD must keep the ICVC indemnified against any liability allocated or attributable to a sub-fund that has been terminated under these rules that was not discharged before the completion of the termination, except to the extent that the ACD can show that it has complied with CIS 14.3.8 R (Duty to ascertain liabilities).

  2. (2)

    The liabilities of the ACD under (1) create a debt (in England and Wales in the nature of a specialty) accruing due from it on the completion of the termination and payable upon the demand of the ICVC.