Typically, selling illiquid assets is a lengthy process which requires time and enhanced due diligence. The liquidator must formalize that the sale is made in the best interest of the shareholders while keeping in mind the running operating costs of the structure. Those sales are sometimes over the counter, therefore AML/KYT2 and solvency checks are required. Also, a full legal review of the sales agreement should be carried out to protect the shareholders of the investment structure. The liquidator must also be able to demonstrate due care in this process in case of shareholders’ complaints.

The complexity of the holding structure and the localization of the portfolio investments can affect the time, resources, and specific knowledge needed to complete the liquidation.

Sometimes the structure is such that between the top investment structure and the concerned asset there are intermediate legal entities (SPVs, HoldCo, LLPs) that must be liquidated in order to distribute the proceeds up to the top investment structure and pay back the shareholders. As these situations often concern multiple jurisdictions, it can, in turn, raise cross-border tax topics and bring additional complexity to the liquidation process.

In some instances, the liquidation of a UCITS with a liquid investment portfolio can be straightforward, providing that all compliance and legal duties have been carried out adequately during the life of the investment vehicle. Yet, producing the liquidator’s report, paying creditors, terminating contracts, ensuring last filings, communicating with the regulator (CSSF), the Trade and Companies Register, organizing the general assembly of shareholders, and following up with all stakeholders can be time-consuming and is a different experience from running the investment strategy during the UCITS “active” life.

Management should consider whether they want to invest the time into the end-of-life of an investment vehicle while still focusing on their core business and future projects.

The liquidator remains liable for a period of five years after the closure of the liquidation. In addition, the liquidation process itself can sometimes last for a longer period than initially anticipated for different reasons:

Difficulty to dispose of illiquid assets or recover the proceeds from an underlying investment structure;

Undisclosed information uncovered after the appointment of the liquidator (e.g. litigation or guarantees issued by the fund);

Non-compliant regulatory (FATCA, Common Reporting Standard, etc.) or tax filings (cross-border, VAT, etc.), requiring amendments or corrective actions; and/or

Blocked accounts in the shareholders’ register holding back the payment of the liquidation bonus distribution.

Finally, cash management is critical and time-consuming. Every invoice received by the investment vehicle requires validation by the liquidator to ensure adequate use of the financial resources.

In addition, should the provision for creditors be under-estimated, excessive distributions could be made to the shareholders. If this situation leads to a lack of liquidity preventing the investment vehicle from paying its creditors, the liquidator will bear primary responsibility to cover the costs for whichever legitimate invoice being received even after the completion of the liquidation.

If the investment vehicle is unregulated (SPVs, HoldCos, etc.), the due diligence typically required by an incoming liquidator will often render the appointment of a professional liquidator too expensive. However, the professional liquidator can be appointed as an advisor to assist incumbent management in the liquidation process, with all formal liquidator responsibilities then borne by the ManCo or director.

In conclusion, the voluntary liquidation of an investment vehicle can be a smooth process if a series of steps are carefully planned, anticipated, and the right skillset is on-boarded.

However, hiring a professional liquidator will give peace of mind to management. They can be assured that every angle of the liquidation process has been duly looked at with a proper follow up of the day-to-day operations by an experienced team.