When it comes to terminating a fund licensed under the laws of Mauritius (Company), one of the key responsibilities of the investment manager is strategizing the best approach for disposing of the Company’s securities and assets. This strategy should not only ensure the Company’s liabilities are met but also aim to maximise returns for investors and creditors. An effective method for achieving these goals is by utilising a ‘liquidating trust’ which in effect is a trust created under the Trusts Act 2001.
The trust (hereinafter referred to as ‘liquidating trust’) is created during the process of winding down a business through liquidation. In cases where a fund faces bankruptcy or chooses to liquidate its assets, such trust can be set up to manage and distribute the remaining assets to creditors and stakeholders.
The trustee of a liquidating trust oversees the liquidation process, which involves selling off assets, settling claims, and distributing proceeds based on a predetermined priority scheme. By holding the remaining assets after resolving the Company’s debts and liabilities, the liquidating trust thus serves as a structured mechanism for the efficient winding down of business operations.
The assets and liabilities of the Company are transferred into the liquidating trust, with investors and creditors assuming the role of beneficiaries. Administrators or liquidators may direct the formation of the liquidating trust during fund administration or winding-up procedures.
A liquidating trust agreement, approved by the administrator or liquidator, outlines the asset manager’s duties, powers within the trust, asset administration terms, and proceeds distribution guidelines. The agreement focuses on expediting the liquidation process, ensuring organised asset management, and expeditious distribution of proceeds to trust beneficiaries.
With at least one qualified trustee overseeing operations, a liquidating trust adheres to a strict framework defined by the Trusts Act in relation to trusts. The trustee is responsible for managing assets, distributing available funds, and resolving claims in compliance with the trust’s governing provisions.
Beneficiaries of the liquidating trust include investors and creditors, with distributions following predetermined priorities specified in the Fund’s constitutional documents. The trust terminates upon completing claims reconciliation, asset liquidation, litigation pursuits, and asset distributions as per the trust agreement terms.
Some of the benefits of liquidating trusts include efficient asset management, creditor protection, asset maximisation, professional oversight, closure, and resolution. These trusts offer stakeholders a centralised entity to manage assets, protect creditor interests, maximise asset value, ensure compliance with legal requirements, and facilitate an organised closure of the business.
In conclusion, by making use of a liquidating trust, companies in Mauritius can streamline the liquidation process, safeguard interests of creditors, optimise asset value, and provide stakeholders with closure and finality in a transparent and efficient manner.
For further information, please contact:
Malcolm Moller, Partner, Appleby
mmoller@applebyglobal.com
