Download MAS proposes framework for Singapore Variable Capital

Publication Date:
28 April 2017
Main Contact:
Tan Sai Hong
+65 6890 7788
[email protected]
MAS proposes framework for Singapore Variable Capital
Companies for collective investment schemes
In a step towards further developing Singapore as a centre for fund
management activities and investment fund domiciliation, the Monetary
Authority of Singapore (“MAS”) issued a consultation paper on 23 March 2017
on the legislative framework for a new proposed corporate structure called the
Singapore Variable Capital Company (“S-VACC”). The consultation closed on
24 April 2017.
Tailored for collective investment schemes (“CIS”), the S-VACC structure will
complement the existing CIS structures currently available in Singapore,
namely unit trusts (constituted by way of trust deeds), companies
incorporated under the Companies Act and limited partnerships governed
under the Limited Partnerships Act. The S-VACC framework seeks to provide
investment managers with greater operational flexibility in Singapore and
allow CIS to consolidate the fund domicile with the respective fund
management activities.
MAS is also studying the tax regime for S-VACCs and exploring the feasibility
of extending the current fund vehicle tax schemes to S-VACCs.
Key features
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
S-VACCs to be governed by new Singapore Variable Capital
Company Act (“S-VACC Act”) administered by Accounting and
Corporate Regulatory Authority (“ACRA”)

S-VACC structure may only be used as a vehicle for CIS and may be
adopted by both open-ended and closed-end funds

Sub-funds with segregated assets and liabilities can be created by
registration with ACRA. Cellular structure proposed for S-VACCs
under which a S-VACC is a single legal entity while its sub-funds
operate as separate cells (without legal personality)

S-VACC may freely redeem shares with valuation and redemption of
shares carried out at net asset value (“NAV”)

S-VACCs assets must be managed by a Permissible Fund Manager

Oversight of fund manager and accountability to shareholders to lie
primarily with board of directors. At least one director of the S-VACC
to be a director of S-VACC’s fund manager

S-VACCs consisting of Authorised or Restricted Schemes to appoint
an approved custodian (an Approved Trustee that is accountable to
MAS) to safeguard shareholders’ interests and take custody of
S-VACC property

S-VACCs to comply with anti-money laundering and countering the
financing of terrorism (“AML/CFT”) requirements and outsource
performance of AML/CFT duties to fund manager

S-VACC directors may dispense with an annual general meeting
(“AGM”) subject to conditions
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Structure governing S-VACCs
MAS proposes to introduce a new S-VACC Act to govern S-VACCs in a
manner similar to the way the Companies Act governs companies. ACRA will
be the Registrar for S-VACCs and administer the S-VACC Act while MAS will
supervise a S-VACC’s compliance with its AML/CFT obligations under
S-VACC legislation.
The S-VACC structure may only be used as a vehicle for CIS. Only S-VACCs
incorporated under the S-VACC Act may use the term “S-VACC” in their
names and hold themselves out as S-VACCs.
MAS proposes that both open-ended and closed-end funds may adopt the
S-VACC structure. The rights of and limits to redemption have to be clearly
set out in the constitution of the S-VACC to ensure S-VACC investors are
clear about their rights of redemption.
Segregation of assets and liabilities under cell structure for sub-funds
To enable S-VACCs to benefit from the economies of scale associated with
umbrella funds, e.g. sub-funds sharing a board of directors and some services
providers, MAS proposes to allow S-VACCs to use a cellular structure under
which a S-VACC is a single legal entity while its sub-funds operate as separate
cells (each without legal personality). Incorporation will be done only once for
the S-VACC. A sub-fund will be constituted by registration with ACRA, upon
which ACRA will provide it with a unique sub-fund identification number.
Shares and share capital
To facilitate redemption of shares at the option of investors (for open-ended
funds) or by the CIS (for closed-end funds) and to allow payment of dividends
out of capital, MAS proposes to allow a S-VACC to freely redeem shares and
use its capital to pay dividends.
Meetings
MAS proposes that the directors of a S-VACC may dispense with the AGM
by giving at least 60 days’ written notice to shareholders. However
shareholder(s) with 10% or more of the total voting rights may require an
AGM by giving 14 days’ notice to the S-VACC before the date by which an
AGM would have been required to be held.
Corporate governance

Board of directors: It is proposed that at least one director of the
S-VACC has to be a director of the S-VACC’s fund manager, and
S-VACC directors are to be subject to disqualification and duties akin to
those under the Companies Act. Additionally, the directors have to be fit
and proper persons. With additional protection to retail investors in mind,
MAS proposes to require S-VACCs consisting of Authorised Schemes to
have at least three directors, at least one of whom has to be independent
of (i) business relationships with the S-VACC, (ii) the fund manager of the
S-VACC (and its related entities), and (iii) all substantial shareholders of
the S-VACC.

Residency requirements: To ensure all S-VACCs have both form and
substance in Singapore, and are accessible to investors and regulators,
MAS proposes residency requirements mirroring those in the Companies
Act: (a) registered office must be in Singapore; (b) at least one director
must be resident in Singapore; and (c) a Singapore-based company
secretary must be appointed.

Permissible Fund Manager: MAS proposes to require a S-VACC to
appoint a Permissible Fund Manager to manage its property, i.e. a
licensed fund management company, a registered fund management
company or a financial institution exempted under the Securities and
Futures Act (“SFA”) from having to hold a capital markets services
licence to carry on business in fund management. The fund manager will
carry out the day-to-day management and investment activities of the
S-VACC under the oversight of the S-VACC’s board of directors.

AML/CFT requirements: S-VACCs will be imposed with AML/CFT
requirements and supervised by MAS for compliance. MAS will require a
S-VACC to outsource the performance of AML/CFT duties to its fund
manager, and hold the S-VACC ultimately responsible for compliance
with its AML/CFT requirements.
Approved custodian
Similar to Authorised and Restricted Schemes structured as unit trusts under
the SFA, MAS proposes to require S-VACCs consisting of Authorised or
Restricted Schemes to have an approved custodian that is an Approved
Trustee who will safeguard the rights and interests of shareholders of the
S-VACC and take custody of the S-VACC’s property. An Approved Trustee
refers to a public company that is approved by MAS to act as a trustee for
Authorised Schemes under section 289 of the SFA.
Additionally, for S-VACCs consisting of Authorised Schemes, MAS proposes
to require the approved custodian to be independent of the S-VACC’s fund
manager and to monitor the fund manager’s compliance with the CIS Code.
Re-domiciliation
Amendments to the Companies Act will be made to introduce an inward
re-domiciliation regime in Singapore. This will allow foreign corporate entities
to transfer their registration to Singapore. MAS proposes to adopt the same
requirements under the inward re-domiciliation regime under the Companies
Act for foreign structures that are equivalent to a S-VACC to re-domicile as a
S-VACC in Singapore.
Winding-up of S-VACCs and sub-funds
MAS proposes adopting a winding-up regime similar to that under the
Companies Act for S-VACCs and sub-funds. For the segregation of assets
and liabilities of sub-funds to apply during insolvency, each sub-fund that
becomes insolvent may be wound up as if it were a separate legal person.
Claims of creditors of a sub-fund being wound up may only be paid out of the
assets of that sub-fund, and not from the other assets of the S-VACC
(including the assets of other sub-funds). Further, MAS proposes additional
grounds for winding up S-VACCs.
Reference materials
The following materials are available on the MAS website www.mas.gov.sg:

Media release

Consultation Paper on the “Proposed Framework for Singapore Variable
Capital Companies”

Draft Singapore Variable Capital Company Act
For further information, please contact:
Investment Funds
Lai Shieh Lin
+65 6890 7630
[email protected]
Ng Wuay Teck
+65 6890 7422
[email protected]
Danny Tan
+65 6890 7738
[email protected]
Tan E-Ping
+65 6890 7784
[email protected]
Tan Sai Hong
+65 6890 7788
[email protected]
Sarah Teo
+65 6890 7743
[email protected]
BT & REITs
Chua Bor Jern
+65 6890 7772
[email protected]
Foong Yuen Ping
+65 6890 7622
[email protected]
Jerry Koh
+65 6890 7770
[email protected]
Jonathan Lee
+65 6890 7412
[email protected]
Long Pee Hua
+65 6890 7746
[email protected]
Teh Hoe Yue
+65 6890 7116
[email protected]
This was first published in the Allen & Gledhill Legal Bulletin (Vol 29, No 4
April 2017). It is intended to provide general information. Although we endeavour to
ensure that the information contained herein is accurate, we do not warrant its accuracy or
completeness or accept any liability for any loss or damage arising from any reliance
thereon. The information herein should not be treated as a substitute for specific legal
advice concerning particular situations. If you would like to discuss the implications of
these legal developments on your business or obtain advice, please do not hesitate to
approach your usual contact at Allen & Gledhill LLP or you may direct the inquiry to
[email protected].