Magazine Issues » March 2019

Inside view: Cross-border Ucits funds

Europe_and_North_AfricaCross-border rules in the EU relating to Ucits can be complex. For anyone new to the market or in need of a refresher, Ivica Kustura of North University, Croatia, offers a simplified explanation.

Through various innovative regulations, the EU encourages the cross-border mobility of all funds structured as a Ucits – or ‘Undertakings for collective investments in transferable securities’. These funds may be in contractual, corporate or unit trust form.

The main regulations facilitating cross-border distribution are a regulation for an EU corporate entity known as the ‘Societas Europaea’, and then legal instruments – the Ucits Directive itself and the Cross-border Mergers Directive (CBMD).

The EU’s Court of Justice also participates by clarifying European legislation and even broadening its scope, seen in landmark cases such as Inspire Art, Cartesio, Vale and Polbud.

Further mobility is even provided at the individual country level where, based on national legislation, it is also possible to transfer the registered office of a company between 12 European jurisdictions: Belgium, Cyprus, the Czech Republic, Denmark, France, Greece, Italy, Luxembourg, Malta, Portugal, Slovakia and Spain.

At the EU level, the contractual, corporate and unit-trust types of Ucits appear quite different among the EU countries and any fund promoter owning one of these structures should give careful consideration before a move to another European jurisdiction. For instance, the unit-trust types of Ucits exist only in the UK, Ireland and Malta and therefore a move for such structures is possible only among these three jurisdictions.

In the EU we find major use of the open-ended investment company model (also known widely in the EU as the Sicav) and the authorised contractual scheme model (known also as the FCP). These have many equivalent counterparts throughout the EU, and so this article concentrates on these two forms of Ucits structures to understand more about Ucits mobility.

Corporate entity
Remember that there are two sets of regulations that underpin the wide cross-border distribution of a Ucits fund: the Societas Europaea regulation; and the cross-border mobility legal instruments (meaning the Ucits Directive and the CBMD).

The Societas Europaea, as a form of corporate entity, can be used in two ways. On the one hand, a Societas Europaea’s corporate form can be incorporated as a ‘management company’. Originally a management company manages just a mutual fund, but since the EU Directive 2001/107/EC amending the Ucits Directive, a management company can also manage an open-ended investment company.

Before performing any activity, the management company must obtain an authorisation from the national institution responsible for supervising Ucits. This authorisation determines the nationality of the management company and allows the management company to benefit from a European passport, with which the company is free to provide its services to Ucits anywhere in the European Union and to market the units of the Ucits not only in the home member state where it is managed, but also in other member states.

On the other hand, the Societas Europaea can be used as the corporate form of an open-ended investment company. It’s worth noting that in this case, the corporate life of the Societas Europaea will be more influenced by the Ucits regulations.

Societas Europaea regulation provides for a detailed procedure of the transfer of the registered office of a Societas Europaea throughout the European Union. The basic principle is that a Societas Europaea does not lose its legal personality by emigrating to another member state because, by definition, it has its European legal personality. The seat transfer is treated as an amendment of its Articles adopted by a qualified majority with more formalities and guarantees.

We need to bear in mind that here, too, for all the deficiencies in the Societas Europaea regulation, it is necessary to consult the relevant national legislation. And also consider that the cross-border merger procedure of the Societas Europaea open-ended investment company will be regulated by the Ucits Directive.

Cross-border mobility legal instruments
All other corporate forms used by Ucits structures may also benefit from mobility throughout the EU resulting from the CBMD and the Ucits Directive. But here again we need to differentiate between the situation for a management company and for an open-ended investment company.

For a management company generally, the CBMD rules are appropriate, while open-ended investment companies must observe the provisions of the Ucits Directive in relation to the procedure of transfer of its registered office.

The CBMD defines three types of mergers that are applicable for public or private limited liability companies: merger by absorption; upstream merger; and merger by the formation of a new company. The mergers of the open-ended investment company are governed by the Ucits Directive, which recognises three merger techniques. These are merger by absorption; merger by the creation of a new Ucits; and asset-to-asset merger.

However, the Ucits Directive applies only if two Ucits are established in the different member states or two Ucits of the same member state are forming new Ucits in another member state.

I would conclude that if a Societas Europaea open-ended company investment company wanted to transfer its registered office, it must follow the prescribed procedure by the Societas Europaea regulation with one exception. This exception relates to the transfer of the registered office resulting from the merger of Ucits.

Ivica Kustura is a lecturer at North University, Croatia

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