JURISDICTIONS: MALTA

Redomiciling your fund in Malta

Maltese regulations and EU membership are making Malta increasingly viable as a domicile for hedge funds
BY DR FRANK CHETCUTI DIMECH, CDF ADVOCATES
Corporate redomiciliations to Malta are generally on the increase, especially for international trading and international holding companies, where Malta offers a number of advantages that were greatly enhanced by EU membership. In its Annual Report for 2004, the Malta Financial Services Authority (MFSA) reported that during that year, 290 companies formerly incorporated and registered outside Malta transferred their domicile to Malta under the Continuation of Companies Regulations. The registration of hedge funds, usually in the form of professional investor funds (PIFs) is also on the increase given the extreme efficiency of the MFSA, EU membership, local and international listing options and the exemption from income tax and capital gains tax at fund level and at non-resident investor level. A fresh registration may not, however, be a suitable option for an existing fund, which would look at redomiciliation in order to continue under Maltese law with all its assets, liabilities, rights and duties. The Continuation of Companies Regulations came into force on 26 November 2002 and redomiciliation is allowed from all the EU, EEA and OECD states, the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Guernsey, the Isle of Man, Jersey and Mauritius, which have appropriate provisions in their laws. In addition, the redomiciliation must also be provided for in the charter, statutes or memorandum and articles, or other instrument constituting or defining the foreign company. The foreign company that is seeking redomiciliation must have existed for at least one year in the approved jurisdiction and be similar in nature to a Maltese company. The typical corporate form of a Maltese fund is the company with variable share capital or SICAV, a tried, tested and flexible formula for the past 10

years for both retail and non-retail funds. In addition, the law also allows an investment company with fixed share capital or INVCO. Needless to say, foreign funds constituted as investment partnerships or unit trusts do not qualify for redomiciliation as companies and it would be necessary (and still worthwhile) to reconstitute the fund in Malta afresh, whether as a SICAV or INVCO or, indeed, as a new investment partnership or unit-trust. In this preliminary stage of adapting the foreign fund to the Maltese corporate structures, and for present purposes, we shall concentrate mainly on the more popular SICAV structure. A number of issues need therefore to be considered.

income out of which payments are to be made to them are pooled; or (ii) at the request of the holders, units are or are to be repurchased or redeemed out of the assets of the scheme or arrangement, continuously or in blocks at short intervals; or (iii) units are, or have been, or will be issued continuously or in blocks at short intervals. A hedge fund is not subject to any investment or borrowing restrictions (except if it invests in immovable property).

SHARE CAPITAL

The share capital of a SICAV is variable and with no par value. The value of the shares is always equivalent to the SICAVs net asset value.

NAME

AUTHOR: DR FRANK CHETCUTI DIMECH

Dr Frank Chetcuti Dimech is managing partner at CDF Advocates (www.cdf.com.mt) in Malta. He has direct experience of a wide spectrum of financial product development and regulation over the past 10 years, including hedge funds and professional investor funds (PIFs). The law firm has responded to the needs of the regulator and the market by providing specialised compliance services for such funds.
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A Maltese SICAV must contain the word SICAV in its name, followed by p.l.c. to designate its status as a public limited company that can offer its shares for sale to the public.

OBJECTS

The objects of the SICAV, being a type of collective investment scheme, must be the collective investment of capital acquired by means of an offer of units for subscription, sale or exchange. Indeed, the scheme must operate according to the principle of risk spreading and either (i) the contributions of the participants and the profits or
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JURISDICTIONS: MALTA

The foreign jurisdiction must allow this type of capital structure and, where necessary, the statutes of the foreign company must also allow it. An alternative, if the foreign company has fixed share capital, is to convert it into a Maltese INVCO and subsequently to a SICAV. The share capital may be expressed in any convertible foreign currency (though below, dollar figures have been used).

If the directors of the fund have the required level of competence, it is not necessary to appoint a manager. It is also not necessary to appoint a custodian and/or a prime broker, though in practice this is recommended in order to implement proper safe-custody arrangements. Statutory auditors will, however, need to be appointed.

OTHER FUND PLAYERS

standard agreements, such as ISDAs, GMRAs or OSLAs, so the agreement of the counterparty would be required before redomiciliation. Based on the above adaptations, a new Memorandum and Articles of Association will need to be drafted and filed with the Companies Registry. If the conditions have been satisfied, the Maltese Registrar of Companies issues an original Provisional Certificate of Continuation and a copy thereof duly certified by him. The certified copy will be sent to the foreign companies registry, together with a request to have the company struck off the register in the original jurisdiction in which the company is incorporated. The original Provisional Certificate of Continuation will be surrendered to the Maltese Registrar together with the certificate of cessation or discontinuation issued by the foreign companies registry as evidence of the companys striking off the register in the companys original jurisdiction of incorporation. At that point, the Maltese Registrar of Companies can issue a final Certificate of Continuation confirming that the company has been definitively registered as continuing in Malta. Concurrently, the fund would have passed through the MFSA licensing process, thus bringing the redomiciliation procedure to an end. Obtaining consent of shareholders, creditors, important third parties and listing authorities will obviously take an appreciable amount of time, as will creating or updating the documentation required. As for licensing, the MFSA have committed themselves to issue an in principle approval within one week, and the full licensing process would not normally take more than six weeks. Costs will, of course, depend on the amount of work involved and it is rather difficult to estimate them with any degree of precision, though generally, they are likely to be in the range of 15,000 to 25,000.

FINALISATION

Hedge funds that are incorporated as open-ended or closed-ended investment companies in Malta As a minimum, there must be at least two shareare not required to issue and register a prospectus holders in a Maltese SICAV. If required under the under the Companies Act 1995. foreign law, the consent of existing shareholders However, an Offering Memorandum is required must be obtained in order to allow the switch. as part of the licence application to the securities The shareholders, both at the time of redomiunit of the MFSA. This document will describe the ciliation as well as new ones after registration in investment objective and policy, any borrowing Malta, must, in the case of a hedge fund meet one and investment restrictions, the base currency, the or more of the qualified investor criteria, namely: accounting period, the risk factors, procedures for 1. a body corporate or other entity which has net investor subscription and redemption, determinaassets in excess of $1m or a body corporate that is part of a group which has such assets; tion of the net asset value, fees, charges, expenses 2. an individual whose net worth or joint net and taxation. worth with that persons spouse, exceeds $1m; LISTED FUNDS 3. a person who has reasonable experience in the acquisition and/or disposal of funds of a similar Foreign funds that are already listed outside nature or risk profile, or of property of the same Malta should have no difficulty retaining their kind as the property, or existing listing. Of a substantial part of the course, the consent of property, to which the the relevant exchange Foreign funds that are already listed fund in question relates; would be required. 4. employees and direcoutside Malta should have no difficulty COLLATERAL tors of service providers to the PIF; Financial collateral retaining their existing listing 5. relations and close arrangements entered friends of the promoters into by non-UCITS limited to a total of 10 funds including propersons per PIF; fessional investor funds or hedge funds with, 6. entities with (or which are part of a group for example, prime brokers will be recognised with) $5m or more under discretionary manageas valid and enforceable in Malta. Of course, existing prime brokerage agreement or advice, investing on its own account or for the account of its clients. ments to which the foreign fund is a party need to be reviewed in order to ensure that there are no SHARES HELD IN THE TRUSTEES NAME adverse consequences if the fund changes its domicile to another jurisdiction. The holding of shares in a Maltese company as a Broadly speaking, redomiciliation would fall trustee is a regulated activity requiring a licence under the concept of reconstitution in industry from the MFSA. Nevertheless, it is possible for foreign trustees to be authorised by the MFSA specifically for the funds purpose only on the basis that the foreign trustees are in possession of a valid licence or authorisation to act as trustees, issued by the relevant regulatory authority in a jurisdiction approved by the MFSA. As with all other public companies, a SICAV must have at least two directors, and, at least in the case of a self-managed fund, they must be fit and proper persons to conduct investment business. The MFSA conducts thorough checks on whether the proposed directors meet this test. To ensure compliance with local requirements, the MFSA will generally ask for the appointment of one local director in the case of a self-managed fund and a judicial representative in other cases. If existing directors need to resign from the foreign fund, the resignation should have been signed and corporate action taken to appoint the new director(s) as well as to record such resignations and appointments in the companys books and in the foreign companies registry (if appropriate) in advance of filing the redomiciliation documents. A company secretary is also required, though this post can be carried out by the local director or judicial representative.
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SHAREHOLDERS

OFFERING MEMORANDUM

TIMING AND COSTS

DIRECTORS

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