|Daniel Futej||Cyril Hric|
Effective from March 18 2016, Slovakia introduced a new type of collective investment scheme, known as a variable capital investment fund. Variable capital investment funds are common in Luxembourg, France, and, more recently, the Czech Republic. In Slovakia, they were introduced as a separate form of fund. The funds that are already in use in Slovakia include:
- unincorporated open-ended and closed-ended unit trusts; and
- funds in company form or co-operatives.
Known in the EU under the acronym SICAV (Société d'investissement à Capital Variable), variable capital investment funds are a legal entity. A SICAV is essentially a modified joint stock company set up to accommodate the requirements of collective investments. This form also allows the SICAV board of directors to decide whether they will manage the funds themselves or appoint a management company under a funds management agreement.
A SICAV differs from a regular joint stock company primarily in the way in which the capital is formed, increased and decreased. The capital is not formed by the total nominal value of all shares, but is equal at any time to the actual value of the fund's assets – that is, the net amount of the capital. For this reason, the shares in this type of company are not given a nominal value. A SICAV issues two types of shares:
- founders' shares, as with any joint stock company; and
- investor shares, which can be redeemed at the request of their owner.
The statutes of a SICAV set out the amount of share capital registered in the commercial register. This is a minimum of €125,000 ($139,000) for an externally managed SICAV and €300,000 for a self-managed SICAV). The statutes also set out the maximum permitted capital by setting out the maximum number of shares the SICAV can issue. If within the ranges permitted, the capital of a SICAV is increased and decreased by investors who purchase shares and investors who redeem their shares. A resolution of the general meeting is not required for this type of increase or decrease in the capital.
However, if a redemption of SICAV shares would cause the share capital to fall below the minimum amount, the SICAV must either decide to suspend share redemption and adopt measures to maintain the minimum capital amount, or convene the general meeting. One way investors would be protected in this case is by means of a prohibition on the founder of the SICAV redeeming his shares until at least six months after the SICAV issues the first shares. This is because when the fund is initially formed, the founder's shares are presumed to comprise a substantial part of the share capital; if the founder were to redeem his shares there would be immediate risk that the share capital would fall below the minimum lawful amount.
The founders' shares issued by the SICAV cannot be issued through a public offering for subscription of shares. By contrast, the SICAV's investment shares must be issued through a public offering. The issue, redemption and redemption suspension of the SICAV shares will be appropriately subject to the rules for the issue, redemption and redemption suspension of units in open-ended unit trusts. Similar to an open-ended unit trust, a SICAV will issue and repurchase its own shares on an ongoing basis. As with a unit, a share repurchased by the company is terminated.
One important distinction is that a SICAV can create sub-funds. The assets and liabilities of sub-funds are separate and the sub-funds have no legal personality. However, they can have their own investment strategies. Investors will be able to move their investments between sub-funds that offer varying degrees of risk while remaining in one investment fund. It is expected that the sub-funds will offer investors a choice of investment strategies under one entity with lower entry and exit fees. In fact, only the owners of shares issued under a specific sub-fund will have the right to vote on matters concerning that sub-fund, provided there is no significant impact on other sub-funds. However, the statutes of the SICAV must govern this process. Shares issued under a sub-fund carry the right to profit participation only as regards that particular sub-fund. The right to participate in the residual value on the dissolution with liquidation also only applies to that particular sub-fund.
Companies or co-operatives domiciled in the Slovak Republic, which as at March 17 2016 are collective investment entities under the existing law on collective investments, will have until December 31 2016 to decide whether to change their legal form to a SICAV.
Daniel Futej and Cyril Hric
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