New Bill on Investment Trusts etc.

Date 31 mar. 2011

 

The Minister of Economy, Trade and Industry has proposed a new bill on investment trusts etc., which is to implement a new EU directive (the UCITS Directive). The bill was introduced in the Danish Parliament on 23 February 2011 and was read for the first time on 1 March 2011. If the bill is adopted, the law is expected to come into force on 1 July 2011.

 

The main contents of the bill:


  • New rules on information for the investors
  • Improved possibilities for cross-border marketing of shares in investment trusts
  • Possibility of cross-border mergers between investment trusts and foreign investment institutes encompassed by the UCITS Directive
  • Possibility of master-feeder structure for investment trusts
  • Structure for cooperation between supervising authorities in the member countries

New rules on information for the investors

Pursuant to applicable law, investment trusts, speciality trusts and hedge funds must publish a complete and a simplified prospectus with information on the investors.


New document with key information on investors

The bill suggests that the simplified prospectus is abolished and is replaced by a new document with key information on the investors. The document with key information on the investors must be short, containing clearly formulated key information which investors may use as a basis for their investment decision. Trusts must draft a document with key information on the investors for each department or share class.


The document with key information on the investors must be usable for sale of shares in investment trusts in EU member countries without other alterations than translation.


Contents of the document with key information on the investors

Apart from stating the most important features of the suggested investment, the key information on investors must state where interested people may find further information on the investment. Moreover, the relevant factual information and information on who administers the investment must appear from the document. The specific formal and material requirements for the document will be established in EU regulation. The regulation will secure identical rules throughout the EU, and the document with key information on investors may therefore be used as a comprehensible basis of comparison for investments within the EU.

 

Liability for the document with key information on investors

The document with key information on investors must only be considered information on the investment and should not be considered part of the contractual basis between the investor and the trust. The trust, facilitators or others may however become liable to the investor as a consequence of the information in the document being inaccurate, deceptive or in contravention of the prospectus.   

 

Matters relating to the prospectus

As a consequence of the introduction of the document with key information on investors, the simplified prospectus is abolished. The complete prospectus must still be drafted and published in the same way, but must only be referred to as ”prospectus”, as it is the only prospectus. The trust must continuously update the most important parts of the prospectus, and the prospectus and any amendments hereto must be forwarded to the Danish Financial Supervisory Authority who must have received the prospectus and any amendments no later than three days after the publishing hereof.


Improved possibilities for cross-border marketing of shares in investment trusts

According to applicable Danish law, a Danish investment trust that wishes to market itself in another member country must give notice of the marketing to the supervising authority of the host country. This has led to the notification process being different between the host countries.


According to the bill, a new notification procedure is introduced which is a consequence of the UCITS Directive. A Danish investment trust wishing to market its shares in another member state must give notice to the Financial Supervisory Authority - instead of notifying the supervising authority of the host country. Subsequently, the Financial Supervisory Authority will check that the information in the notice are correct and forward the notice to the competent authority of the host country together with a statement saying that the investment trust complies with its obligations under the UCITS Directive. The host country may not challenge the decision of the Financial Supervisory Authority. In that way, the notification procedure is in agreement with the procedure for cross-border activities pursuant to MIFID and the prospectus directive.  


Possibilities for cross-border mergers between investment trusts and foreign investment institutes encompassed by the UCITS Directive

Pursuant to applicable law, an investment trust may already now merge across borders on the condition that the investment institute with which the investment trust merges has the same legal status as the investment trust.


The bill suggests that an investment trust should be given the opportunity to make cross-border mergers with trusts which do not have the same legal form as the trust itself. The bill thus creates better opportunities for the advantages of large-scale operations in connection with administration of a large aggregate capital.


As basis for a merger, a merger plan must be prepared. If a Danish investment trust merges across borders, the merger must be approved by the Financial Supervisory Authority if the investment trust is the discontinuing entity. If the investment trust is the continuing entity, the merger must be approved by the competent authority in the home country of the discontinuing entity.


More specific rules on e.g. application for clearance, the contents of the merger plan, third party control and general meeting approval must be determined by regulation from the Financial Supervisory Authority.

 

Possibility of master-feeder structure for investment trusts

The bill introduces an opportunity for investment trusts to organise themselves in a master-feeder structure. The local investment trust (the feeder institute) may invest all or at least 85% of its shares in another investment trust or in an EU investment institute – a UCITS (the master institute). The master institute must be expected to gain from large-scale operations in connection with the administration of a large aggregate capital to the benefit of the investors.


Pursuant to the bill, at least 85% of the shares in investment trusts, which invest as feeder institute, must be invested in an investment trust or a UCITS which is master institute. The remaining 15% or less must make the feeder institute capable of possessing the necessary liquid assets.


The competent authorities in the home country of the feeder institute must approve the feeder institute’s investment policy.


If the feeder institute and master institute have different custodians or accountants, the custodians and the accountants must conclude an agreement on exchange of information.


The feeder and the master institute must conclude a legally binding agreement which makes it possible for the feeder institute to comply with its obligations, including looking after the interests of the members and supervising the master institute.


Conversion from ordinary investment trust to feeder institute

Investment trusts that wish to convert themselves into feeder institutes must inform their members of the plan. The members may then cash their shares in the investment trust free of charge within 30 days.


According to the bill, a prohibition exists against members getting to pay purchase and sales commissions in both master and feeder trusts at purchase and sale of shares in a master-feeder structure. Contrary to this, no suggestions are made on prohibition against the master-feeder structure charging members of both trusts administration fees, holding commissions, consulting fees etc.


Structure for the cooperation between authorities in the member countries

According to applicable law, the Financial Supervisory Authority may already now pass on information on investment trusts to the supervising authorities in other EU member countries. The bill provides the Financial Supervisory Authority with better opportunities for cooperation with other supervising authorities. The cooperation must take place bilaterally or within the framework of multilateral agreements.


The new rights in the bill are exchange of information with other supervising authorities in the member states, possibilities of conducting investigations in Danish investment trusts and investment administration companies abroad which take part in cross-border activities when a foreign authority requests this and the possibility to conduct investigations in investment trusts and investment administration companies abroad which take part in cross-border activities where Denmark has the authority competence as home country.


Conclusion and future implications

The bill, which is a new main law for investment trusts etc., introduces simpler and more harmonised rules within the field of investment trusts. The bill will implement a new EU directive concerning investment trusts (the UCITS Directive) which is incorporated by means of a new composition of the act on investment trusts and speciality trusts and other collective investment schemes etc. However, the bill does carry on a number of regulations from this act. At the same time, the name of the act is changed into Act on Investment Trusts etc.


The main subjects of the bill are the introduction of new rules on information for the investors, better opportunities for cross-border marketing of shares in investment trusts, introduction of the possibility of cross-border mergers between investment trusts and foreign investment institutes covered by the UCITS Directive, introduction of the opportunity for master-feeder structure for investment trusts, introduction of a structure for cooperation between authorities in member countries and general revision of and changes to the present rules.


A consequence of the bill will be that Danish companies administrating investment trusts will be given better opportunities for selling shares in Danish investment trusts and for managing foreign capital by establishing investment institutes abroad. On the other hand, they will be exposed to stronger competition at the domestic market because foreign companies will gain similar opportunities in Denmark. Moreover, the companies administrating investment trusts may achieve large-scale operation advantages by establishing master-feeder structures and participating in cross-border mergers.


Before 1 July 2011, investment trusts, speciality trusts and hedge funds, which are approved according to the act on investment trusts and speciality trusts and other collective investment schemes etc., cf. Consolidated act no. 904 of 5 July 2010, must bring their articles of association into agreement with the new rules in the act on investment trusts etc. and, within the same period of time, they must prepare the document with key information on investors in accordance with the new rules in the act on investment trusts etc.



If you have any questions or require additional information on investment trusts, please contact Partner Dan Moalem (dmo@mwblaw.dk), Attorney Pernille Lundin Larsen (pel@mwblaw.dk) or Trainee Ted Rosenbaum (tro@mwblaw.dk)


The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.