Download AIFMD Private-Equity, News Update November

November 2012
New disclosure rules and asset-stripping rules
for private-equity funds acquiring private or public companies
The Alternative Investment Fund Managers Directive
will lead to the regulation of private-equity and hedge
funds throughout Europe. Private-equity funds and
hedge funds acquiring portfolio companies will soon
become subject to specific disclosure and assetstripping rules.
Introduction
On 22 July 2013, new rules will enter into force for
investment managers of investment funds pursuant to
the Alternative Investment Fund Managers Directive
("AIFMD") which will be implemented into the Dutch
Financial Supervision Act (Wet op het financieel
toezicht) and delegated legislation.
In addition to the AIFMD, it is expected that the
European Commission will adopt by the end of the
year a Regulation. Further technical standards will be
set by the European Securities and Markets Authority
(“ESMA”).
To date certain investment funds that offer
participation
interests
(deelnemingsrechten)
to
professional investors only, such as private-equity
funds and non-public real estate funds, are exempted
from the rules regulating investment funds. However,
under the new rules, these funds will become subject
to supervision by the Netherlands Authority for the
Financial Markets (Autoriteit Financiële Markten or
"AFM") and the Dutch central bank, De Nederlandsche
Bank ("DNB"). This will have material consequences
for an investment fund of this type and its day-to-day
operations.
Under the AIFMD, any manager of an investment fund
shall need to apply for a license with the competent
authority, being in the Netherlands the AFM.
Managers of investment funds that currently benefit
from an exemption from licensing will need to apply for
a licence under the AIFMD regime prior to 22 July
2014 at the latest. However, they will be able to
continue to benefit from the current exemption until the
AFM makes its decision on the request for a licence.
Managers of investment funds that already have a
licence will be deemed to have a licence under the
AIFMD regime as from 22 July 2014 and will not need
to apply for a new licence.
The AIFMD provides that investment managers must
already use their best efforts (inspanningsverplichting)
to comply with the new rules as per 22 July 2013.
In this newsletter, we identify the new rules that will
apply when a private-equity fund or any other fund
regulated by the AIFMD, acquires control over a new
portfolio company.
Exemption for small investment funds
The AIFMD will not apply to the manager of a “small
investment fund”, which is a fund that meets both of
the following two criteria:
1. the total assets under management do not
exceed €100 million or, if the investment fund
does not use leverage, €500 million, provided in
the latter case that the investors do not have any
redemption rights for a period of 5 years; and
2. the units in the investment fund (a) are offered to
professional investors only or (b) are offered to
less than 150 investors, for a consideration of at
least €100,000 per investor or have a
denomination of at least €100,000.
If an investment manager manages more than one
investment fund, the total assets of all these funds will
be aggregated to determine whether the investment
manager is exempt from obtaining a license. In
addition the assets managed by other investment
managers which are, directly or indirectly, linked by
common management or control, or by a qualified
direct or indirect holding, to the investment manager
should also be taken into account.
Consequences for private-equity funds active in
the M&A market
Private-equity funds becoming subject to the AIFMD
will have to comply with certain disclosure rules and
rules on asset stripping when acquiring a new portfolio
company.
Dutch private-equity investment managers will be
subject to the Dutch AIFMD rules. A private-equity
manager located in another member state of the
This information is intended to highlight issues for general reference only. It is not comprehensive nor does it constitute legal, tax or financial advice. Any information
contained herein is subject to change without notice. This information should not be relied upon in any specific factual or legal situation and does not cover all laws or
regulations that may be applicable in all circumstances. You should seek professional advice before making use of any of the information. Houthoff Buruma further
gives no warranty as to the accuracy or completeness of this information. No liability whatsoever is accepted by Houthoff Buruma.
European Economic Area ("EEA") will be bound by the
rules of its home Member State. It appears that
private-equity managers outside the EEA will not be
subject to the new disclosure rules and asset-stripping
prohibitions unless they have raised funds in the EEA
as a result of which they are bound to the AIFMD.
Under the new Dutch rules, a Dutch investment
manager who, alone or together with other investment
managers, acquires “control” over a private or public
company, irrespective of its country of incorporation,
must comply with certain disclosure obligations and
certain restrictions on asset stripping.
“Control” is defined as directly or indirectly acquiring
more than 50% of the voting rights in a “private
company” or, in the case of a “public company”,
directly or indirectly acquiring the number of voting
rights that triggers a mandatory bid under the EC
Takeover Directive (30% of the voting rights in the
Netherlands). Any add-on acquisition by a portfolio
company also fall under the definition of acquiring
'control'.
A “private company” is defined as a company whose
corporate seat is in a Member State and whose shares
or depositary receipts for shares are not admitted to
trading on a regulated market (gereglementeerde
markt). A “public company” is defined as a company
whose corporate seat is in a Member State and whose
shares or depositary receipts for shares are admitted
to trading on a regulated market. This means that a
“private company” includes a company whose shares
are traded on a multilateral trading facility (MTF) or are
admitted to trading on a stock exchange located or
operated outside the EEA.
The disclosure requirements and restrictions on asset
stripping do not apply if control is acquired over a small
private or public company, i.e. a company that (i)
employs less than 250 persons and has an annual
turnover of less than €50 million or an balance sheet
total of less than €43 million or (ii) is incorporated for
the specific purpose of buying, holding and maintaining
property.
Disclosure requirements
The following disclosure requirements will apply to
investment funds acquiring control of a private
company.
A.
The investment manager must inform the
AFM, the private company and its
shareholders on the acquisition of control by
its private equity fund within 10 working days
following the acquisition.
B.
Within 10 working days after the acquisition,
the investment manager must also inform the
AFM of the investment funds voting interest
when this interest reaches, exceeds or falls
below the following thresholds: 10%, 20%,
30%, 50% and 75%, even if no control is
acquired.
C.
The investment manager will make available
to the AFM, the private company and its
shareholders the following information:
a.
the identity of the manager;
b.
the policy for preventing and managing
conflicts of interest; and
c.
the communication policy relating to the
private company, particularly in relation
to the employees.
D.
The investment manager must also inform the
shareholders of the private company as to the
intentions regarding the future of the company
and the likely impact of these intentions on the
employees and directors, including their
employment conditions.
E.
The investment manager must share
information referred to above under (A),
(C) and (D) with the representatives of
employees or, in the absence thereof, with
employees themselves.
F.
The investment manager must inform the
participants in the private-equity fund and the
AFM how the transaction was financed.
G.
The annual report of the private company and
the investment fund must include certain
disclosures and the report must be provided to
the representatives of the employees of the
private company or (in the absence thereof) to
the employees themselves.
H.
The annual report of the private company
must be made available to all investors of the
investment fund within six months after the
end of a financial year.
the
(B)
the
the
In the event of acquiring control of a public company,
the disclosure requirements listed above under point
(C) apply mutatis mutandis. In addition, the
representatives of the public company’s employees or
(in the absence thereof) the employees themselves
must be informed of the acquisition of control by the
private equity fund.
Asset stripping
For 24 months following the completion of a
transaction whereby control is acquired over a private
or public company, the investment manager will be
prohibited from voting in favour of, or otherwise
cooperating with, any of the following actions:
1.
any distribution of profits or other freely
1
distributable reserves , if (i) the net equity of the
company is lower than the minimum issued share
capital including the reserves, or (ii) the amount of
the distribution is more than the amount of profit
distributed in relation to the latest financial year;
2.
capital reduction, except in the event of offsetting
the losses by reducing the issued share capital or
conversion of share capital into a nondistributable reserve;
3.
any repayment of shares; or
4.
repurchase of shares.
There are certain situations in which these restrictions
do not apply, including that of a portfolio company
acquiring its own shares by universal succession
(algemene titel), or in the event of a merger.
These restrictions will also need to be taken into
account when refinancing the portfolio company.
1
The Dutch act transposing the AIFMD only refers to distribution of
profits. However, the explanatory notes and the AIFMD also refer to
distributions of other distributable reserves.
Contact:
Matthijs van den Broek
E. [email protected]
T. +31 (0)20 605 6105
Ronald Schulten
E. [email protected]
T. +31 (0)20 605 6991