Knowledge

Planning the winding up of a Guernsey investment fund should begin well before the fund's term expires. While a fund's governing documents will usually set out the mechanics of the winding up, administrators, directors, fund managers and investment advisers should also consider a range of practical and regulatory matters to ensure that the process is completed efficiently, the interests of fund parties are protected, the risk of investor dissatisfaction is reduced and costs are minimised.

These issues include how quickly the remaining assets can be realised and when an application for the surrender of the fund's authorisation or registration should be submitted to the Guernsey Financial Services Commission (the "GFSC").

This briefing highlights the key practical steps that fund managers, directors and administrators should consider when planning a winding up, including asset realisation, the timing of any surrender application to the GFSC, contingency planning and investor communications.

The governing documents of a fund (such as the limited partnership agreement for a limited partnership or the memorandum and articles for a company), together with applicable law (including the Limited Partnerships (Guernsey) Law, 1995 for a limited partnership and the Companies (Guernsey) Law, 2008 for a company), will set out the process for realising and distributing the fund's assets. That process requires careful planning to determine how assets will be realised and distributed to investors in a way that gives the fund sufficient flexibility to meet its final obligations while reducing disruption to any remaining investments. It should also align with investor expectations and regulatory requirements.

Fund managers need to be realistic with the timelines for divestment and communicate these with investors as required under the fund's governing documents. If realisation is proving difficult, we typically see the following alternatives being considered:

• extending the term of the fund, where permitted by the fund's governing documents;
• establishing a follow-on or continuation fund;
• establishing a trust to hold any remaining assets until they are sold; or
• making in specie distributions to investors.

Ideally, a fund will be wound up prior to the end of its term. However, particularly for funds constituted as limited partnerships, the fund's governing documents will permit one-plus-one extensions, which allow the general partner and the limited partnership advisory committee to the extension of the fund term by one year initially and then can be further extended by an additional year. Any further extensions thereafter will need to be approved with the consent of the limited partners. Any extension will also have to comply with applicable laws, for example, for a fund constituted as a limited partnership a notification of its continuance beyond its current expiry must be filed with the Guernsey Registry not less than 15 days before the date current expiry date. Early engagement with the limited partnership advisory committee will therefore be essential.

On termination of a fund constituted as a limited partnership, the powers of the general partner will cease and no further business shall be conducted by the fund except for such action as shall be necessary for the orderly winding up of the fund. Where the fund is constituted as a company, the authority of the directors ceases, and a liquidator is appointed to wind up the fund.

The prospective timeline for divestment will also potentially impact on when a fund can surrender its authorisation or registration to the GFSC. The default position of the GFSC is that it will typically consent to a surrender request when it has received evidence that the liquidation or winding up is fully complete and there are no residual or outstanding regulatory concerns.

However, there are other circumstances under which the GFSC will be prepared to consider a surrender request, including where a fund has entered into a non-contentious liquidation (if constituted as a company) or the dissolution process (if constituted as a limited partnership), or there is other evidence that the fund is in an advanced state of managed wind down. The GFSC may also take into account the nature of the fund's investors, and if the fund no longer has the characteristics of a collective investment scheme.

It is important to note that the GFSC will exercise its discretion in considering surrender requests having regard to the overarching objectives of the protection of investors, the protection of the reputation of the Bailiwick and the protection of the interests of the public. The early surrender of the authorisation or registration is something that is always worth considering due to the potential cost savings for the fund.

Starting to plan for the winding up of a fund early will also allow for directors and managers to prepare accordingly for any risks or complications that may arise during the winding up process. This could include making contingency reserves to cover potential or unforeseen liabilities and expenses, setting out a process for addressing third-party claims, ensuring that the directors and officers of the fund have appropriate liability insurance throughout the winding up period and approving an "Unclaimed Investor Money Policy" in line with the GFSC's guidance note, "Unclaimed Investor Money under the Protection of Investors (Bailiwick of Guernsey) Law, 2020" (GFSC, 17 December 2024).

Finally, active communication with investors is crucial to ensure the winding up process proceeds as smoothly as possible. Early engagement and transparency with investors will help to maintain trust and potentially mitigate any disputes that arise. Any approvals or consents required from investors should be obtained promptly and in accordance with the fund's governing documents, applicable laws and GFSC requirements.

Bedell Cristin has significant practical experience in the winding up of Guernsey investment funds. If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.