Singapore Variable Capital Companies (S-VACCs): Singapore's answer to open-ended corporate funds

The Monetary Authority of Singapore proposes to set up a legislative framework for a new corporate structure designed specifically for collective investment schemes.

On 23 March 2017, the Monetary Authority of Singapore (MAS) published the highly anticipated consultation paper on the proposed establishment of a new corporate legal vehicle in Singapore, designed specifically for use as collective investment schemes (CIS) – the Singapore Variable Capital Company (S-VACC).

In coming up with the proposed new framework, the MAS took into account laws and practices of other leading fund jurisdictions such as Luxembourg, the Republic of Ireland and the United Kingdom where similar corporate-type vehicles have become commonplace for many years.

With the appropriate tax and regulatory backing, as well as widespread industry support, this proposed new framework should play a significant part in promoting and encouraging domiciliation of private and retail funds in Singapore. The S-VACC will also need to be heavily marketed and promoted if it is to be used widely. With the strong growth of the asset management and investment funds industry in Singapore over the years, the S-VACC could potentially be a timely introduction during the current phase of the industry’s evolution. Some of the key proposals for the new framework are set out below:

Key proposals Details
  • S-VACCs will be introduced through a new S-VACC Act.
  • The Accounting and Corporate Regulatory Authority (ACRA) will be the registrar for S-VACCs and will administer the S-VACC Act and subsidiary legislation.
S-VACC only for CIS
  • S-VACCs can only be used as a vehicle for CIS.
  • S-VACCs can be used for both open-ended and closed-end funds.
  • Only S-VACCs incorporated under the S-VACC Act can use the term, “S-VACC” in their names and hold themselves out as S-VACCs.
  • S-VACCs cannot be registered with a name that is undesirable, identical or misleadingly similar to any name of any other company, business, or a restricted name.
Cellular structure
  • A S-VACC is a single legal entity, but can adopt a cellular structure, with its sub-funds operating as separate cells (each without legal personality).
  • Each sub-fund will be constituted by registration with ACRA and will have a unique identification number.
  • The assets and liabilities of each sub-fund will be segregated and this would also apply during insolvency.
  • The MAS will void any provisions (for example, in the constitution or in agreements entered into by S-VACCs) which are inconsistent with the segregation of assets and liabilities of sub-funds.
  • S-VACCs will be required to ensure proper segregation of assets and liabilities of sub-funds.
  • S-VACCs will be required to disclose, in documents in which their sub-funds are referred to, and in dealings with third parties prior to entering into oral agreements on behalf of any of their sub-funds, the name, unique sub-fund identification number, and that the sub-fund has segregated assets and liabilities.
  • S-VACCs which are authorised schemes or restricted schemes will be required to disclose to their shareholders the risks of cross-cell contagion.
Redemption of shares and capital reduction
  • S-VACCs will be allowed to freely redeem shares and pay dividends using its capital.
  • Valuation and redemption of shares must be carried out at net asset value (NAV).
  • Exception: closed-end funds listed on a securities exchange may conduct share buy-backs in accordance with the applicable listing requirements and will not need to be at NAV.
Dispensation of annual general meetings (AGMs)
  • No requirement for S-VACCs to hold an AGM in certain circumstances, for example, where directors elect to dispense with the AGM by giving at least 60 days’ written notice to the shareholders of the S-VACC.
  • 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.
Annual audit and single accounting standards
  • S-VACCs are required to appoint an accounting entity to audit their accounts on an annual basis. No requirement for S-VACCs to have an audit committee.
  • Financial information of each sub-fund in a S-VACC must be kept separate, but must be prepared in accordance with a single accounting standard across all sub-funds of the S-VACC.
  • S-VACCs are permitted to prepare their financial statements using an applicable ASC Standard (ie, the SFRS or the forthcoming IFRS-identical Financial Reporting Standards) or the IFRS. S-VACCs which are authorised schemes will be required to use RAP 7, as is currently required for unit trusts under the Code on Collective Investment Schemes.
  • All audited financial statements of S-VACCs must be made available to shareholders (but not to the public).
Confidentiality of shareholders
  • S-VACCs will not be required to disclose its register of shareholders to the public, but must make the register available to supervisory and law enforcement agencies (for example, ACRA and the MAS) where necessary.
  • S-VACCs will be required to maintain their shareholder registers within Singapore at their registered offices.
  • S-VACCs will be required to maintain information on beneficial owners, and nominee directors will need to disclose their nominee status and nominators to their companies, similar to that required of companies incorporated under the Companies Act (Cap. 50) of Singapore (CA).
  • At least one director must be a director of the S-VACC’s fund manager.
  • S-VACC directors will be subject to disqualification and duties broadly similar to those under the CA.
  • S-VACC directors will be required to be fit and proper persons.
  • S-VACCs which are authorised schemes will be required to have at least three directors, of which at least one director 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.
Substance requirements
  • The registered office of a S-VACC must be in Singapore.
  • At least one of the S-VACC’s directors must be resident in Singapore.
  • A S-VACC must appoint a Singapore-based company secretary.
Management by a permissible fund manager
  • Permissible fund managers include:
    • (A) a holder of a capital markets services licence for fund management
    • (B) a registered fund management company, or
    • (C) a financial institution exempted under section 99(1)(a), (b), (c) or (d) of the SFA (ie licensed and approved banks and licensed finance and insurance companies).
  • Permissible fund managers do not appear to include, for example, fund managers relying on the “immovable assets licensing exemption” or the “related corporations licensing exemption”.
AML/CFT requirements
  • S-VACCs will be subject to AML/CFT requirements, and will be supervised by the MAS for AML/CFT compliance.
  • S-VACCs will be required to outsource performance of AML/CFT duties to its fund manager, but is ultimately responsible for compliance with its AML/CFT requirements.
Appointment of approved custodian
  • S-VACCs which are authorised schemes or restricted schemes will be required to have an approved custodian that is an approved trustee under section 289 of the SFA.
  • For S-VACCs which are authorised schemes, the approved custodian will be required to be independent of the fund manager and will be required to monitor the fund manager’s compliance with the Code on Collective Investment Schemes.
  • Operational obligations relating to accounts and registers that are currently imposed on approved trustees for unit trusts will not be imposed on approved custodians where they are already imposed on a S-VACC or its directors under S-VACC legislation.
  • Inward re-domiciliation regime may be made available for foreign investment structures that are akin to S-VACCs to re-domicile as S-VACCs in Singapore.
Winding up
  • S-VACCs and their sub-funds will be subject to a winding-up regime similar to that under the CA.
  • Each sub-fund may be wound up as if it were a separate legal person.
  • S-VACCs are subject to the following additional grounds for winding up:
    • (A) the S-VACC is being used to conduct business outside its permitted use as a vehicle for CIS only
    • (B) the S-VACC does not have a permissible fund manager to manage its property for such period as may be prescribed, or
    • (C) the S-VACC breaches its AML/CFT obligations.
Debentures and receivership
  • S-VACCs will be allowed to issue debentures, including debentures relating to specific sub-funds.
  • Receivers or receivers and managers may therefore be appointed in respect of the property of the S-VACC as a whole, or in respect of the property of specific sub-funds.
Arrangements, reconstructions and amalgamations
  • The mechanisms for arrangements, reconstructions and amalgamations under the CA will not be adopted for S-VACCs.
  • The constitution of a S-VACC will need to clearly set out shareholders’ rights in respect of a scheme of arrangement, merger, reconstruction or amalgamation involving the S-VACC (including any of its sub-funds).
Tax treatment
  • The MAS is studying the tax regime for S-VACCs, including exploring the feasibility of extending the current fund vehicle tax schemes to S-VACCs.

The deadline for submission of written comments on the proposals is 24 April 2017. As with all initial proposals, refinements (or more) will likely play an important part in creating a more attractive and useful new statutory creature.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document. Simmons & Simmons JWS Pte. Ltd. is registered and incorporated in Singapore as a Joint Law Venture under the Companies Act of Singapore. We are licensed to practise Singapore law in the permitted areas of legal practice according to section 130A(1) of the Legal Profession Act of Singapore. The permitted areas of legal practice excludes (according to Rule 3(1) of the Legal Profession (International Services) Rules 2008 of Singapore) areas such as constitutional and administrative law; conveyancing; criminal law; family law; succession law; trust law; and appearing or pleading in court.