On 15 May 2013 The Chamber of Deputies approved a bill on a new Act on Investment Companies and Investment Funds (AICIF) and passed it to the Senate. The bill replaces current Acts on Collective Investment and will have a significant effect on a collective investment market in the Czech Republic.
The bill’s content primarily represents the transposition of the European Directive on, The Alternative Investment Fund Managers (AIFMD) and UCITS Directive. It reflects as well other relevant EU legislation, such as the proposal for Regulation of the European Parliament and of the Council on European Venture Capital Funds (EuVeCa) and the Proposal for a Regulation of the European Parliament and of the Council on European Social Entrepreneurship Funds (EuSEF). As the deadline for the incorporation of the above mentioned directives into Czech law is 22 July 2013 and the proposed date of effectiveness of AICIF is 1 July 2013 we can expect a relatively quick legislative process ending with the bill’s approval.
According to the explanatory memorandum, the bill should, inter alia, reflect the approach taken by other European countries. The UCITS IV, UCITS V and AIFMD directives and the national laws of Luxembourg, Germany, Great Britain and Ireland were used as models.
The law should introduce major new items into Czech law, primarily in the area of permissible legal forms of investment funds. While current law only provides for the use of a joint stock company and unit trust, the new law expands this list to include a trust fund, a joint stock company with variable capital and a limited partnership with investment certificates. However, the AICIF ties application of the provisions on these new legal forms to the effectiveness of the new Civil Code and Business Corporations Act which is as of 1 January 2014.
The treatment of the trust fund, which was introduced into Czech law by the new Civil Code, deviates in some respects from this regulation for the purposes of the AICIF. This primarily applies to the matter of foundation, which is possible only by contract, and the matter of statutes, to which a special treatment pursuant to the AICIF applies and excludes the Civil Code treatment.
The provisions addressing the joint stock company with variable capital are inspired by German law, while the treatment of sub-funds also reflects Luxembourg law. The main benefit should be the possibility of flexibly changing the amount of basic capital without such administrative and time demands as are required for a regular joint stock company. Thus, only “recorded” basic capital equal to the amount contributed through the subscription of founders’ shares will be entered in the commercial register, while the amount of basic capital will be changed flexibly based on the subscription or buyback of participant (investment) shares to which the owner’s right to request their buyback by the company is attached.
A limited partnership with investment certificates, the third new legal form of collective investment in the Czech Republic, should be similar to Britain’s limited liability partnership. The limited partners’ shares will comprise investment certificates with unlimited and unconditional transferability, though they will not be publicly tradable.
One of the most significant changes is that AICIF will apply to entities which were so far excluded from the collective investment regulations. Legal form or listing on an exchange does not play any role. Generally said AICIF will govern any entity that raises capital from a number of investors – which is interpreted by relevant regulatory bodies as two or more - with a view to investing that capital for the benefit of those investors in accordance with a defined investment policy. However, there are some exceptions such as exceptions for holding companies (as defined by AIFMD), management of pension funds, employee participation or savings schemes.
Experience will show how far the proposed legislation goes toward fulfilling the expectations of making collective investment more attractive.