CIRCULAR
SEBI/HO/AFD/PoD-I/P/CIR/2024/026 April 26, 2024
To,
All Alternative Investment Funds
Sir/Madam,
Sub: Flexibility to Alternative Investment Funds (AIFs) and their investors to deal
with unliquidated investments of their schemes
1. Securities and Exchange Board of India (Alternative Investment Funds) (Second
Amendment) Regulations 2024 (“AIF Regulations Amendment”), have been
notified on April 25, 2024, inter alia, to provide additional flexibility to AIFs and
their investors to deal with unliquidated investments of their schemes. Copy of the
notification is available at link.
2. Dissolution Period:
2.1. Regulation 2(1)(ia) of AIF Regulations states as under –
““dissolution period” means the period following the expiry of the liquidation
period of the scheme for the purpose of liquidating the unliquidated
investments of the scheme of the Alternative Investment Fund.”
2.2. Regulation 29(9) of AIF Regulations states as under –
“Notwithstanding anything contained in sub-regulation (7), during
liquidation period of a scheme, an Alternative Investment Fund may
distribute investments of a scheme which are not sold due to lack of liquidity,
in-specie to the investors or enter into the dissolution period, after obtaining
approval of at least seventy five percent of the investors by value of their
investment in the scheme of the Alternative Investment Fund, in the manner
and subject to conditions specified by the Board from time to time.
Provided that in the absence of consent of unit holders for exercising the
options under sub-regulation (9) during liquidation period, such investments
of the scheme of the Alternative Investment Fund shall be dealt with in the
manner as may be specified by the Board from time to time.”
2.3. In this regard, the following conditions are specified –
2.3.1. Before seeking the requisite investor consent, the AIF / manager
shall arrange bid for a minimum of 25% of the value of its
unliquidated investments. The bid shall be arranged for units
representing consolidated value of all unliquidated investments of
the scheme’s investment portfolio. The manager may arrange bids
from multiple bidders in this regard.
Page 1 of 5
2.3.2. The AIF / manager shall disclose the following to investors prior to
seeking their consent –
i. The proposed tenure of the Dissolution Period, details of
unliquidated investments, value recognition of the
unliquidated investments for reporting to Performance
Benchmarking Agencies, etc.
ii. An indicative range of bid value, along with the valuation of
the unliquidated investments carried out by two
independent valuers.
2.3.3. Prior to expiry of the Liquidation Period, the AIF / manager shall
intimate SEBI about obtaining the investor consent and the
investors’ decision to enter into Dissolution Period.
2.3.4. If the AIF / manager successfully arranges bid for a minimum of 25%
of the value of unliquidated investments of the scheme, the
dissenting investors of the scheme shall be offered an option to
fully exit the scheme out of the 25% bid arranged by the AIF. After
exercising the exit option by aforesaid dissenting investors, any
unsubscribed portion of the bid may be used to provide pro-rata
exit to non-dissenting investors should they opt for the same.
2.3.5. If the AIF / manager fails to arrange bid for a minimum of 25% of
the value of unliquidated investments of the scheme, the AIF can
still opt for Dissolution Period, provided that it obtains consent of at
least 75% of the investors by value of their investment in the
scheme of the AIF.
2.3.6. If the bidder or its related parties are investor(s) in the scheme,
such investor(s) shall not be provided exit from the scheme out of
the bid. [“Related party” shall have the same meaning as provided
in Regulation 2(1)(zb) of SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015.]
2.3.7. At the time of entering into Dissolution Period, for appropriately
capturing the track record of performance of the manager and for
reporting the same to Performance Benchmarking Agencies, the
value of such unliquidated investments of the scheme shall be
calculated in the following manner –
i. Based on bid value, if the AIF / manager arranges bid for a
minimum of 25% of the value of unliquidated investments of
the scheme; or
ii. One Rupee, if the AIF / manager fails to arrange bid for a
minimum of 25% of the value of unliquidated investments of
the scheme.
Page 2 of 5
2.3.8. The performance of the manager during the Dissolution Period shall
be captured separately and reported to Performance Benchmarking
Agencies, distinct from the performance of the scheme before
entering into Dissolution Period.
2.3.9. If the scheme of the AIF fails to sell the unliquidated investments
during the Dissolution Period, such investments shall be
mandatorily distributed in-specie to the investors. It is clarified that
no further extension or Liquidation Period shall be available to
these schemes after the expiry of Dissolution Period.
2.3.10. The manager of the AIF shall not charge management fee during the
Dissolution Period.
3. Mandatory in-specie distribution of unliquidated investments:
3.1. With regard to the proviso of Regulation 29(9) mentioned at para 2.2
above, the following is specified –
3.1.1. During the Liquidation Period, if the AIF fails to obtain requisite
investor consent for entering into Dissolution Period or in-specie
distribution, then the unliquidated investments shall be mandatorily
distributed to investors in-specie, without requirement of obtaining
consent of 75% of investors by value of their investment in the
scheme of the AIF.
3.1.2. The value of such investments distributed in-specie shall be
recognised at one rupee for capturing the track record of
performance of the manager and for reporting to Performance
Benchmarking Agencies.
3.1.3. In case any investor is not willing to take in-specie distribution of
unliquidated investments, such investments shall be written off.
4. One-time flexibility to schemes of AIFs whose Liquidation Period has expired, to
deal with unliquidated investments
4.1. Regulation 29(9A) of AIF Regulations states as under –
“If the liquidation period for a scheme of an Alternative Investment Fund
has expired or is expiring within three months from the date of notification
of the Securities and Exchange Board of India (Alternative Investment
Funds) (Second Amendment) Regulations, 2024, such schemes may be
granted an additional liquidation period, subject to such conditions and in
the manner as may be specified by the Board.
Provided that the additional liquidation period granted under sub-
regulation (9A) shall be without prejudice to the issuance of any direction or
measures in accordance with the provision of the Act and regulations
framed thereunder.”
Page 3 of 5
4.2. In this regard, the following is specified –
4.2.1. Schemes of AIFs, whose Liquidation Period has expired or shall
expire on or before July 24, 2024 (i.e. within three months from
the date of notification of AIF Regulations Amendment), shall be
granted a fresh Liquidation Period till April 24, 2025.
4.2.2. The aforesaid fresh Liquidation Period shall be available only to
such schemes that do not have any pending investor complaint
with respect to non-receipt of funds / securities as on April 25,
2024, i.e., the date of notification of AIF Regulations
Amendment.
In case a scheme has pending investor complaint(s) with respect
to non-receipt of funds / securities, such scheme may avail the
fresh Liquidation Period upon resolution of investor complaint(s).
However, the fresh Liquidation Period shall be available only
from the date of resolution of the complaint till April 24, 2025.
4.2.3. During the fresh Liquidation Period, the scheme shall fully
liquidate its investments, or distribute the investments in-specie
or opt for the Dissolution Period.
5. Responsibility for compliance:
5.1. The manager, trustee and key management personnel of AIF and manager
shall be responsible for compliance with the procedure prescribed above.
5.2. The manager, upon exercising the options mentioned above, shall submit
report on compliance with the provisions of this circular on SEBI
Intermediary Portal (www.siportal.sebi.gov.in) in the format as specified
therein.
5.3. The trustee/ sponsor, as the case may be, shall ensure that the
‘Compliance Test Report’ prepared by the manager in terms of Chapter 15
of SEBI Master Circular for AIFs (Circular No.
SEBI/HO/AFD/PoD1/P/CIR/2023/130 dated July 31, 2023), includes
compliance with the provisions of this circular.
6. Discontinuation of the option of launching Liquidation Scheme
6.1. Regulation 29A(8) of AIF Regulations states as under –
“No Alternative Investment Fund shall launch any new liquidation scheme
under this regulation after the notification of the Securities and Exchange
Board of India (Alternative Investment Funds) (Second Amendment)
Regulations, 2024:
Provided that any liquidation scheme launched by an Alternative
Investment Fund prior to the notification of the Securities and Exchange
Board of India (Alternative Investment Funds) (Second Amendment)
Regulations, 2024 shall continue to be governed by regulation 29A and the
other provisions of these regulations till such schemes are wound up.”
Page 4 of 5
6.2. In this regard, the following is specified –
6.2.1. Any Liquidation Scheme launched by an AIF prior to April 25, 2024
(i.e. the date of notification of AIF Regulations Amendment) shall
continue to be governed by SEBI Circular No.
SEBI/HO/AFD/PoD1/CIR/2023/098 dated June 21, 2023 on
‘Modalities for launching Liquidation Scheme and for distributing
the investments of AIFs in-specie’, till such schemes are wound up.
7. This circular shall come into force with immediate effect.
8. This circular is issued with the approval of the competent authority.
9. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
10. The circular is available on SEBI website at www.sebi.gov.in under the categories
"Legal framework - Circulars" and "Info for - Alternative Investment Funds”.
Yours faithfully,
Sanjay Singh Bhati
Deputy General Manager
Tel no.: +91-22-26449222
ssbhati@sebi.gov.in
Page 5 of 5