Termination and winding-up applies to all funds with a fixed termination date or a stated duration and in certain circumstances to other funds or the sub-funds of umbrella funds.

Whilst some of today’s mutual funds have been in existence for 50 or more years, at some point all funds face the prospect of termination, either because falling investor interest leads to mass redemption’s, making the fund uneconomic to operate, or because changes in the investment or economic environment make the investment objective unattractive or unachievable, making it extremely difficult to attract new investors. In such cases, the manager may be permitted to apply to the regulator for the fund’s authorisation to be revoked on the grounds that its continued operation is no longer commercially viable, and for it to be wound up or terminated.

FundsMerging or amalgamating one fund or sub-fund with another may seem like an alternative to termination, and it is from the point of view of participants who wish to continue with some form of investment. From

a legal standpoint, however, mergers usually involve °1-1e or both of the subject funds being discontinued, or terminated, with the other or a new fund acquiring the assets of the discontinuing fund(s). Regulations usually set out both the circumstances and the procedures for a termination, including winding-up the fund and distributing its remaining assets. Winding-up is usually a voluntary action, but there are circumstances where winding-up is compulsory, including:

  1. withdrawal of the fund’s order of authorisation for any reason;
  2. expiration of the period for which the fund was established and authorised;
  3. approval of an amalgamation, merger or allocation of its assets with or to one or more other funds.

The manner of a winding-up may depend upon the terms of any scheme of merger or amalgamation approved by the fund’s share- or unit holders, but otherwise normally proceeds as follows:

  1. dealings in the fund’s shares or units are suspended and participants and relevant regulators notified;
  2. if the fund is a company, a liquidator is appointed to supervise and control its liquidation and to instruct the custodian or trustee;
  3. the custodian or trustee realises the net assets of the fund, and either the liquidator or the trustee pays off or makes provision for any remaining liabilities, including the costs of winding-up, and then distributes the net proceeds to remaining participants in proportion to their share- or unit holdings;
  4. unclaimed net proceeds or other cash (including any unclaimed income distributions) held by the liquidator/trustee at the time the fund is finally dissolved will have to be dealt with according to the governing law, which may require that such amounts arc paid over to the courts for safekeeping or disbursement.

When the winding-up is completed, the relevant regulator/s) are informed and the formalities completed by withdrawal or revocation of the order of authorisation.

Provided the process of winding-up is completed within a reasonably short time, reports and accounts are usually required only upon dissolution and sent to each person who was a participant immediately before the date of dissolution.

Possibly related posts: (automatically generated)
Termination or Winding Up of Mutual Funds