SEBI on June 21, 2023 has issued Modalities for launching Liquidation Scheme and for distributing the investments of Alternative Investment Funds (AIFs) in-specie. During the liquidation period of an AIF’s original scheme, if the decision to launch a Liquidation Scheme is made, the AIF must obtain consent from at least 75% of investors based on the value of their investments in the original scheme. This ensures that a significant majority of investors are in agreement with the liquidation process. The following process shall be followed:
Launching the Liquidation Scheme
The AIF must create a separate scheme for the liquidation process, which should be clearly identified by including the term “Liquidation Scheme” in its name. This distinction helps investors differentiate between the original scheme and the liquidation scheme.
Bid Arrangements for Unliquidated Investments
Once the requisite investor consent is obtained, the AIF must arrange for a bid that covers at least 25% of the value of the unliquidated investments in the original scheme’s portfolio. This bid represents the consolidated value of each unliquidated investment.
Disclosure of Bid Value and Valuation
The AIF is obligated to disclose the bid value, along with the valuation of the unliquidated investments, as assessed by two independent valuers. This transparency ensures that investors are well-informed about the value of their investments and the bid process.
Dissenting Investors and Exit Options
Investors who did not consent to sell their unliquidated investments to the Liquidation Scheme have the option to fully exit the original scheme. They can exercise this exit option through the bid arranged by the AIF or its manager. Non-dissenting investors can receive a pro-rata exit using the unsubscribed portion of the bid.
In-Specie Distribution of Unliquidated Investments
In cases where the AIF decides to distribute unliquidated investments in-specie, the same consent requirement of 75% of investors by value applies. The AIF must also arrange a bid for at least 25% of the value of the unliquidated investments, and the bid value should be disclosed along with the valuation.
Reporting and Compliance
The manager, trustee, and key management personnel of the AIF are responsible for complying with the prescribed procedures. The manager must submit a report on compliance to SEBI and make suitable disclosures in subsequent scheme documents. Reporting to Performance Benchmarking Agencies is also required for accurate performance assessment.
