CIRCULAR
SEBI/HO/AFD/PoD-I/P/CIR/2023/098 June 21, 2023
To,
All Alternative Investment Funds
Sir/Madam,
Sub: Modalities for launching Liquidation Scheme and for distributing the
investments of Alternative Investment Funds (AIFs) in-specie
1. SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”), have
been amended and notified on June 15, 2023, inter alia, to provide flexibility to
AIFs to deal with investments of their schemes which are not sold due to lack
of liquidity during the winding up process, by either selling such investments to a
new scheme of the same AIF (‘Liquidation Scheme’) or distributing such
unliquidated investments in-specie. Copy of the notification is available at link,
wherein, inter alia, the following new regulations have been inserted in AIF
Regulations –
1.1. Regulation 2(1)(pb): “‘liquidation period’ means a period of one year
following the expiry of tenure or extended tenure of the scheme for fully
liquidating the scheme of an Alternative Investment Fund.”
1.2. Regulation 2(1)(pc): “‘Liquidation scheme’ means a close ended scheme
launched by an Alternative Investment Fund only for the purpose of
liquidating the unliquidated investments purchased from its scheme, whose
tenure has expired.”
1.3. Regulation 29(9): “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 sell such investments to a liquidation scheme,
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. In this regard, the following is specified –
2.1. Liquidation Scheme:
[
(i) During the Liquidation Period of a scheme of an AIF (‘Original Scheme’), if
the AIF decides to launch Liquidation Scheme, the AIF shall obtain
consent of 75% of investors by value of their investment in the Original
Scheme.
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(ii) The scheme launched by the AIF for this purpose shall contain the words
‘Liquidation Scheme’ in its name.
(iii) Upon obtaining the requisite investor consent for launching Liquidation
Scheme, the AIF shall arrange bid for a minimum of 25% of the value of
the unliquidated investments. The bid shall be arranged for units
representing consolidated value of each unliquidated investment of the
Original Scheme’s investment portfolio.
(iv) The AIF shall disclose the bid value, along with the valuation of the
unliquidated investments carried out by two independent valuers, to all
the investors of the Original Scheme.
(v) The dissenting investors of the Original Scheme who did not consent to
sell the unliquidated investments to the Liquidation Scheme, shall be
offered an option to fully exit the Original Scheme out of the 25% bid
arranged by the AIF/ manager. After exercising the exit option by
aforesaid dissenting investors, any unsubscribed portion of the bid shall
be used to provide pro-rata exit to non-dissenting investors.
(vi) If the bidder or its related parties are investors in the Original Scheme,
they shall not be provided exit from the Original Scheme out of the bid.
[Related party shall have same meaning as provided in SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.]
(vii) Subsequently, the unliquidated investments of the Original Scheme shall
be sold to the Liquidation Scheme. For capturing in the track record of the
manager and for reporting to Performance Benchmarking Agencies, the
value of such sale shall be –
a. Bid value, if the AIF/ manager arranges bid for a minimum of 25% of
the value of unliquidated investments of the Original Scheme.
b. One Rupee, if the AIF/ manager fails to arrange bid for a minimum of
25% of the value of unliquidated investments of the Original Scheme.
(viii) Liquidation Scheme shall allot its units to the Original Scheme for
purchasing investments from Original Scheme in the manner specified
above.
(ix) Upon receipt of units of Liquidation Scheme, the Original Scheme shall
mandatorily distribute such units of Liquidation Scheme in-specie in lieu
of its units issued to investors.
(x) The Liquidation Scheme shall be launched and Original Scheme shall be
wound up, prior to the expiry of the Liquidation Period of the Original
Scheme.
(xi) In terms of Regulation 29A(2), Liquidation Scheme has been provided
exemption, inter alia, from the requirement of obtaining SEBI’s comments
on the PPM. Accordingly, the tenure of the Liquidation Scheme shall be
calculated from the date of filing of PPM with SEBI and such tenure shall
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not be more than the tenure of the Original Scheme excluding any
permissible extension.
(xii) Liquidation Scheme shall not extend its tenure or sell its investments to
another Liquidation Scheme. Further, Liquidation Period, as defined in
Regulation 2(1)(pb), shall not be available to Liquidation Scheme.
(xiii) If an AIF (viz. A1) has invested in units of another AIF (viz. A2) and the
investee AIF (i.e. A2) has launched a Liquidation Scheme, then the
investor AIF (i.e. A1) upon expiry of its tenure or extended tenure, shall
mandatorily distribute the units of Liquidation Scheme held by it, in-
specie to its investors (i.e. investors of A1).
(xiv) Performance of Liquidation Scheme shall also be reported to
Performance Benchmarking Agencies, in terms of SEBI Circular No.
SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 05, 2020.
(xv) While obtaining the requisite investor consent, manager shall disclose to
the investors that the value of the unliquidated investments sold to the
Liquidation Scheme shall be in the manner given at para 2.1(vii) above,
for capturing in the track record of the manager and for reporting to
Performance Benchmarking Agencies.
2.2. In specie distribution of unliquidated investments of a scheme:
(i) During the Liquidation Period of an Original Scheme of an AIF, if the AIF
decides to distribute unliquidated investments in-specie, the AIF shall
obtain consent of 75% of investors by value of their investment in the
Original Scheme.
(ii) Upon obtaining the requisite investor consent for in-specie distribution of
unliquidated investments, the AIF shall arrange bid for a minimum of 25%
of the value of the unliquidated investments. The bid shall be arranged
for units representing consolidated value of each unliquidated investment
of the Original Scheme’s investment portfolio.
(iii) The AIF shall disclose the bid value along with the valuation of the
unliquidated investments carried out by two independent valuers to all
the investors of the Original Scheme.
(iv) The dissenting investors of the Original Scheme who did not consent to
in-specie distribution, shall be offered an option to fully exit the Original
Scheme out of the 25% bid arranged by the AIF/ manager. After exercise
of the exit option by aforesaid dissenting investors, any unsubscribed
portion of the bid shall be used to provide pro-rata exit to non- dissenting
investors.
(v) If the bidder or its related parties are investors in the Original Scheme,
they shall not be provided exit from the Original Scheme out of the bid.
[Related party shall have same meaning as provided in SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.]
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(vi) Subsequently, the unliquidated investments shall be distributed in-specie.
For capturing in the track record of the manager and for reporting to
Performance Benchmarking Agencies, the value of such in-specie
distribution shall be –
a. Bid value, if the AIF/ manager arranges bid for a minimum of 25% of
the value of unliquidated investments of the Original Scheme.
b. One Rupee, if the AIF/ manager fails to arrange bid for a minimum of
25% of the value of unliquidated investments of the Original Scheme.
(vii) The in-specie distribution shall be carried out and Original Scheme shall
be wound up, prior to the expiry of the Liquidation Period of the Original
Scheme.
(viii) While obtaining the requisite investor consent, manager shall disclose to
the investors that the value of the unliquidated investments distributed
in-specie shall be in the manner given at para 2.2(vi) above, for capturing
in the track record of the manager and for reporting to Performance
Benchmarking Agencies.
2.3. Mandatory in-specie distribution of unliquidated investments:
If the AIF fails to obtain requisite investor consent for launch of Liquidation
Scheme or in-specie distribution of unliquidated investments, 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. The value of such
investments distributed in-specie shall be recognised at One Rupee for
capturing in the track record of the manager and for reporting to
Performance Benchmarking Agencies. In case any investor not willing to take
the in specie distribution of unliquidated investments, such investments
shall be written off.
2.4. Responsibility for compliance:
(i) The manager, trustee and key management personnel of AIF and
manager shall be responsible for compliance with the procedure
prescribed above.
(ii) The manager of AIF, upon exercising any of the options mentioned above,
shall submit report on compliance with the provisions of this circular on
SEBI Intermediary Portal (www.siportal.seb.gov.in) in the format as
specified therein.
(iii) The manager of AIF shall report the value, as specified above, with regard
to sale of unliquidated investments to Liquidation Scheme or distribution
of unliquidated investments in-specie, to Performance Benchmarking
Agencies in a timely manner for the purpose of performance
benchmarking. The manager shall also make suitable disclosure with
regard to the same in the PPMs of subsequent schemes.
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(iv) The trustee/ sponsor of AIF, as the case may be, shall ensure that the
‘Compliance Test Report’ prepared by the manager in terms of SEBI Circular
No. CIR/IMD/DF/14/2014 dated June 19, 2014, includes compliance with
the provisions of this circular.
3. This circular shall come into force with immediate effect.
4. This circular is issued with the approval of the competent authority.
5. 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.
6. 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
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