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Newsletter | August 2014, Issue 3
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CORPORATE
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Proposed Amendments to the Financial Investment Services and Capital Markets Act
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On Thursday, April 24, 2014, the Financial Services Commission (“FSC”) announced proposed amendments (“Amendments”) to the Financial Investment Services and Capital Markets Act (“FSCMA”). The Amendments have been prepared as subsequent measures to the “Plan to Reform Private Equity Funds (“PEF”) Policies” and “M&A Invigoration Plan” announced by FSC on December 4, 2013 and March 6, 2014, respectively. We provide below a summary of the important aspects of the Amendments regarding PEFs:
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Four PEF Categories Will change to “Management Participation Type Private Collective Investment Vehicle”
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The Amendments combine and simplify the regulatory framework by reducing the four private fund categories of General Private Funds, Hedge Funds, PEFs, and Corporate Restructuring PEFs to two categories of “Specialized Investment Type Private Collective Investment Vehicle” and “Management Participation Type Private Collective Investment Vehicle” (PEFs will be classified under this category).
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The Current Pre-Registration System will Change to a Post-Reporting System
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The Amendments require PEFs to register with the Financial Supervisory Service (“FSS”) within two weeks of their establishment. Prior to the Amendments, PEFs were required to register before their establishment.
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Allocation / Management of PEF’s Funds and Assets
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The Amendments permit PEFs to allocate up to 30% of their net assets in securities without any management participation purpose. Prior to the Amendments, PEFs could allocate only up to 5% of their assets in securities without any management participation purpose.
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Restrictions on Transactions with Related Parties
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The Amendments restrict transactions with related parties as follows:
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Other than transactions involving certain exceptions (e.g., transaction on a securities exchange), PEFs may not engage in related party transactions (the detailed scope of related parties will be set forth in the Presidential Decree of the FSCMA) and
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PEFs may not acquire securities issued by (i) an affiliate of a General Partner (“GP”) or (ii) an affiliate of a Limited Partner (“LP”) that has de facto control over the PEF that exceed a certain threshold amount (which will be determined by the Presidential Decree of the FSCMA).
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Finally, although not included in the Amendments, the FSC may contemplate further amendments to the Presidential Decree of the FSCMA, including:
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Permitting PEFs to utilize a business transfer transaction structure rather than limiting the transaction structure strictly to the purchase of equity securities;
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Permitting an SPC established by a PEF to provide collateral with respect to the debt the SPC has assumed; and
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Permitting PEFs to invest in real estate assets that relate to a target company in which the relevant PEF has invested.
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Back to Main Page
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If you have any questions regarding this article, please contact below:
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For more information, please visit our website:
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