Private equity: do any risks remain in your dormant fund structures?

Private equity funds are formed with a fixed life after which the manager will complete the disposal of any assets and return surplus funds to investors. 
A fund structure typically comprises UK limited partnerships, limited liability partnerships and limited liability companies registered in locations such as the UK, the Channel Islands and the Cayman Islands.  There may also be holding companies in the structure in other jurisdictions such as Luxembourg.  
It is important to formally wind up a fund structure once it has reached the end of its life to ensure that unnecessary costs are not incurred and liabilities are closed off, including contingent liabilities that may exist as a result of warranties, guarantees, indemnities and other residual obligations of the fund. 
The process
The formal process for winding up and eliminating a fund structure will depend on the type of legal entity and the location. For example, in the UK, both companies and limited liability partnerships can be eliminated by a members’ voluntary liquidation (solvent liquidation), and there are very similar processes available in the Channel Islands and Cayman. 
However, the winding up of a limited partnership is governed by the provisions of the limited partnership agreement which may provide for the general partner to wind up the partnership, for a liquidating trustee to be appointed or may even be silent on the winding up process. Typically, the general partner is best placed to undertake the winding up of the partnership, whether as liquidating trustee or otherwise. 
As the general partner has joint and several liability for all of the partnership’s liabilities and is therefore almost always a limited liability company or limited liability partnership, it is important that the general partner company is eliminated through liquidation to ensure liabilities are closed out. 
When winding up a fund structure it is important to review the structure as a whole. This will ensure that the winding up is well planned and efficient from a tax, legal and commercial perspective. It will also ensure the process is cost effective as pre-elimination due diligence will be streamlined. 

How we can help
Moore Stephens’ Corporate Simplification team has private equity sector experts that can help you wind up dormant or redundant funds structures in a risk managed and cost effective way. For more information contact one of the team.

Leave a comment

 Security code