HM Treasury has issued a consultation paper proposing changes to the current regime governing regulated collective investment funds. The most significant of these would be to introduce a protected cell regime for UK OEICs ie, to provide that the claims of creditors of an umbrella OEIC would be limited to a claim against the assets of the relevant sub-fund to which the creditor's claim relates. Other sub-funds would not be required to contribute to any shortfall.

Under the Treasury's proposals, the change would apply to all new UK umbrella OEICs formed after any change to the regulations. Existing OEIC umbrellas could elect to adopt segregated liability, provided they obtain unanimous consent from all their then creditors. A potential practical difficulty with the latter is that while most OEICs probably have a limited number of creditors eg, the Revenue, brokers and custodians, these tend to be running account creditors so it would be necessary to obtain their express consent rather than just relying on converting on a date when there were no creditors. It would be simpler if, for example, a threshold of the consent of, say, 90% of creditors by value was sufficient.

One area of uncertainty is the proposal that the exclusion of cross-liability would not apply in the case of fraud. The difficulty with such an exclusion is that the principle behind a protected cell regime is to protect the investors, not the creditors. To exclude liabilities incurred as a result of fraud from the protection against cross-liabilities prejudices the very investors which the protected cell regime is designed to benefit.

Any protected cell regime would not apply to authorised unit trusts, where it is proposed to retain the current ad-hoc arrangements (eg, by limiting the trustee's right of indemnity across all the sub-funds).