FMA consultation proposed guidance on winding-up requirements for registered schemes

Background

The Financial Markets Authority - Te Mana Tātai Hokohoko (FMA) is inviting feedback on draft guidance on the winding-up procedures of registered schemes. The guidance aims to clarify the intention and compliance expectations of sections 212 and 213 of the Financial Markets Conduct Act 2013 (FMCA), being the initial steps in winding-up a registered scheme and the requirements of the subsequent winding-up report, respectively.

Submissions are due 17:00, Friday 13 October 2023.

 

What issues does the draft guidance intend to address?

The FMA has observed varying approaches to sections 212 and 213, some of which it considers inconsistent with the intention of these provisions. The draft guidance seeks to clarify the FMA's expectations about how market participants comply with these winding-up rules.

 

What does the draft guidance say?

Winding-up resolutions

• Winding up resolutions should clearly state the “wind-up effective date” to create a reference point for other winding-up events (such as preparation of final financial statements).
• A “wind-up effective date” can be the date of the resolution, a specific future date or set by reference to future contingent events (eg, settlement of the sale of scheme assets).
• If a resolution does not clearly specify the “wind-up effective date”, that date will be the date the resolution is signed.

 

Wind-up financial statements and distribution of assets

• Wind-up financial statements must be prepared and audited within four months of the “wind-up effective date”, and sent to the FMA and investors within 20 working days of audit completion, together with an explanation about how any remaining scheme assets will be distributed (winding-up report).
• If the governing document allows, partial distributions of assets can be made any time before the winding-up report is sent to the FMA and investors. A partial distribution must be in the best interests of investors.
• FMA must be advised of the date on which the final distribution of assets is completed.
• The FMA can extend the time period for compliance with these provisions.

Final distribution of assets

• The final distribution of assets has not occurred until all investors have received their winding-up entitlements and any remaining funds (eg, for “Gone No Address” or “GNA” investors) have been transferred to Treasury or Inland Revenue as unclaimed money.

Annual financial statements during wind-up

• Even during the wind-up process, the FMCA requires annual financial statements to be prepared for each subsequent balance date. The FMA suggests the timing of wind-ups should be managed to avoid the preparation of unnecessary additional financial statements, but the FMA will consider tailored relief from this requirement on a case-by-case basis.

Timing of winding-up resolution and final distributions

• The FMA suggests that an “appropriate proportion” of scheme assets should remain undistributed until the winding-up financial statements have been provided to all investors. This is because the FMA considers one purpose of those financial statements is to give investors the opportunity to challenge how the assets are being distributed. This also means that the wind-up effective date cannot be immediately before or on the date of the final distribution of scheme assets.

 

Our view

We think the draft guidance contains some useful areas of clarification, particularly in relation to the winding-up resolution and how it sets the “wind-up effective date”. It also helpfully reiterates the statutory requirements of sections 212 and 2013.

However, we query whether the purpose of final financial statements is to allow investors to challenge how assets are distributed in the wind-up and so whether it is necessary to wait for those financial statements before making the final distribution.

Having to wait for wind-up financial statements before making the final distribution could mean investors are waiting a number of months to receive their final payments out of the scheme. This would incur opportunity costs for investors and seems unnecessary given the involvement of the supervisor and assurance by auditors. For this reason, traditional practice has instead been to seek to distribute remaining scheme assets as soon as reasonably practicable.

Separately, there could be merit in considering whether the guidance should facilitate more pragmatic ways of dealing with “GNAs”. For example, allowing GNA funds to be transferred and held by the supervisor on a separate trust outside the scheme at that stage to allow completion of the wind-up. This will give the manager time to try and locate and pay the “GNA” investors before transferring those funds to the Treasury or Inland Revenue as unclaimed money.

 

Next steps

The FMA have sought feedback on the draft guidance. If you have any questions about the consultation, would like any assistance preparing a submission, or have any comments you would like us to include in our submission, please get in touch with Tom Barnes, Alasdair McBeth, Rachel Taylor, or your usual DLA Piper advisor.