FMA issues final guidance on winding-up requirements for registered schemes

The Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) has issued its final guidance on the winding-up procedures of registered schemes after considering feedback received on the consultation draft in October 2023. Our previous article, FMA consultation proposed guidance on winding-up requirements for registered schemes provided a summary of the consultation.

The guidance clarifies how managers should comply with the steps set out in sections 212 and 213 of the Financial Markets Conduct Act 2013 when a registered scheme is being wound up.

 

How has the final guidance evolved from its draft?

The "wind-up effective date" and winding-up timelines

The final guidance provides a more detailed definition of the "wind-up effective date" in response to calls from submitters, namely that it:

• is the date that the winding-up begins
• may be the date of the court order, or resolution to wind up
• may be specified in the winding-up resolution, or contingent on a future event

We believe this will help eliminate much of the guesswork in the winding-up process given there are several steps in the process that make reference to the wind-up effective date.

Whether the winding-up effective date could be on or close to the date of the final distribution was one of the more contentious consultation issues. We understand that it is common practice to do so, which results in the winding-up report being sent after final distribution.

The consultation draft communicated a clear expectation that investors are to be given enough time between receiving the winding-up report and the final distribution to challenge the manner of distribution. The final guidance now refers to providing the winding-up report to investors before the final distribution as "best practice" rather than an "expectation" from the FMA.

We believe that this position adequately recognises that the supervisor continues to have an obligation to act in the best interests of investors throughout the winding-up process.

Additionally, the final guidance also includes some helpful example timelines showing where different milestones (including the wind-up effective date) could fall in the wind-up process for different types of schemes, recognising that timelines could vary depending on the liquidity of the underlying assets.

Partial distributions and challenges by investors

The final guidance clarifies how distributions could be made during the winding up period, and that funds can and should be held back to cover winding up fees and costs.

We believe this more closely aligns with the market's interpretation of the law, and in turn will provide comfort to managers that they have been compliant with the FMA's expectations.

The consultation draft suggested that funds should be held back primarily to give investors an opportunity to "challenge" the proposed manner of final distribution. Submitters wanted clarity on the nature of a "challenge" and how to provide for it. In response, the final guidance says investors should have time to understand and question the proposed manner of final distribution after they are given information on it.

Tracing "Gone No Address" (GNA) investors

The final guidance states an expectation to take "all reasonable steps" to locate GNA investors within a "reasonable timeframe". It also suggests that managers be proactive going about GNA tracing to mitigate delays to the winding-up process. Some helpful practical recommendations were also provided, including:

• investigating and searching public records; and
• making address requests.

Individual and class relief

The final guidance makes it clear the FMA intends to consider class exemption relief from the obligation to prepare financial statements under Part 7 where this overlaps with the preparation of winding-up reports under section 213. In the interim, "no action" relief appears to be available on a case-by-case basis.

It also continues to recognise that the overlapping obligations may result in reporting that:

• is not as meaningful to investors; and
• may incur costs that outweigh the benefits of compliance, especially where the original purpose of the obligation is no longer relevant.

 

Our view

We are pleased to see that the guidance has been clearly reworked having considered feedback from the consultation. The final guidance clearly indicates that the FMA has considered and recognised the issues arising from the duplication of financial reporting obligations, and that class relief is coming. It signals that the FMA is prepared to provide flexible relief where warranted and will be pragmatic in its approach to bring better outcomes for investors.

Read the FMA's Guidance, available on their website, and the original Consultation draft (October 2023).

If you have any questions regarding the final guidance or require assistance with a winding-up matter, please contact Rachel Taylor, Tom Barnes, or your usual DLA Piper advisor.