TLDR:
- SEBI, the capital markets regulator in India, is proposing to provide flexibility to Alternative Investment Funds (AIFs), Venture Capital Funds (VCFs), and their investors to deal with unliquidated investments beyond the expiry of their tenure.
- The regulator suggests allowing the same scheme to continue with unliquidated investments for a certain period or extending the dissolution process for fully liquidating unliquidated investments.
The Securities and Exchange Board of India (SEBI) has proposed giving more leeway to Alternative Investment Funds (AIFs), Venture Capital Funds (VCFs), and their investors in handling unliquidated investments made in their schemes after the schemes’ duration has expired. The regulator suggests that instead of launching a new liquidation scheme, the same scheme itself can be allowed to continue with the unliquidated investments beyond their tenure for a certain period or dissolution period for fully liquidating their unliquidated investments.
The proposal also includes extending flexibility to venture capital funds through migration to the AIF regime. Currently, the option to launch a liquidation scheme is only available to AIF schemes under the “Liquidation Period.” However, the proposal suggests extending the flexibility of the dissolution process to VCFs as well.
SEBI has sought public comments on the proposal until February 2. The proposal came after the regulator received representations from participants in the AIF industry highlighting certain tax-related issues and the time, cost, and efforts involved in setting up a liquidation scheme and winding up the original AIF scheme.
According to the consultation paper, if an AIF scheme decides to opt for a dissolution period during the liquidation period, it should obtain positive consent from 75% of investors by value of their investment in the scheme. The AIF should also arrange bids for a minimum of 25% of the value of the unliquidated investments. The regulator suggests that investor approval and bid should be obtained before the expiry of the liquidation period.
The proposal also suggests a one-time flexibility for AIF schemes whose liquidation period has expired or will be expiring within one month from the date of notification in this regard to deal with unliquidated investments. The regulator also recommends creating a sub-category under Category I VCFs called Migrated VCFs to facilitate migration to AIF regulations.
The proposal aims to address tax issues and make the liquidation and winding-up processes more efficient and cost-effective for AIFs, VCFs, and their investors.
