Article Post on 15 October 2008

Amendments to the Original SICAR Law

Luxembourg Parliament has amended SICAR law dated back to 2004 in order to improve vehicle's attractiveness

In recent years, Luxembourg has become one of the favoured locations for private equity funds. With the new law on the investment companies in venture capitel (SICAR), its status is now greatly enhanced. On 15 October 2008, Luxembourg’s Parliament passed a new law containing a number of amendments to the original SICAR Law. Those should be considered below.

The SICAR, a Flexible and Tax Neutral Structure, designed as a vehicle for venture capital and private equity. The recently implemented changes reflect experiences made since the introduction of the SICAR, the most important of which will be introduced below. Overall it appears that the legislator aimed at streamlining the SICAR and the SIF (Specialised Investment Fund). Whilst they still address different types of investment strategy, the SICAR now resembles the SIF much closer than before as far as structural issues are concerned. SICARS may now be set up as umbrella funds, too. The utilisation of sub-funds enables SICAR managers to run different strategies within a single entity and to benefit from the advantage of the segregation of assets and liabilities between the various sub-funds. Furthermore:

  • Share premiums may from now on be taken into account, when calculating the SICAR’s minimum capital of € 1 million.
  • The list containing a number of specified control duties for which the depositary was responsible has been removed.
  • The definition of “well-informed investor” has been harmonised with the 2007-SIF-Law’s definition.
  • It has been made clear that neither the SICAR’s managers nor managers involved with the SICAR’s management need to meet the well-informed investor criteria.
  • The asset evaluation has been modified. Rather than being made by reference to the “foreseeable sales price estimated in good faith” asset evaluations are henceforth to be made by reference to the “fair value”.
  • Investors no longer need to be compulsory informed about the net asset value on a half-yearly basis.
  • Prospectuses and annual report only need to be “prepared” and available to investors rather than having to be published. Annual reports must be available within six months of the period to which they relate.
  • From now on, a SICAR, irrespective of the legal form chosen, may decide that its capital shall at all times be equal to its net asset value.

While the new law abolishes constraints and makes the legal framework more flexible, the SICAR remains a regulated vehicle, subject to supervision by the Commission for the Supervision of the Financial Sector (Commission de Surveillance du Secteur Financier (CSSF)). This provides the SICAR with a certain state guarantee that often attracts investors particularly in these times of financial instability. With this and other measures Luxembourg manages to achieve a good balance between a flexible legal framework and state supervision which makes it the perfect place to invest in private equity.

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