Legal and Tax Updates

17 Apr

By Uncategorized

Issue: No. 008P/24 – 17 April 2024

I. OVERVIEW

Capital Markets has been one of the most important sectors for investors and companies in Cambodia to raise and collect funds from the public in order to increase capital to expand their business operations. Equity securities via initial public offering (also known as IPO) and debt securities offering (also known as bond issuance) have been a conventional, though recently increased in popularity, form of fund raising for investors and companies.

Given the ongoing active investment landscape in Cambodia, diverse investment mechanisms have been developed by the Royal Government of Cambodia. On July 20, 2023, the Non-Banking Financial Services Authority had issued a “Prakas on the Issuance of Fund Units of Collective Investment Scheme” which enables funds to be raised from the public under collective investment scheme (CIS).

II. WHAT IS COLLECTIVE INVESTMENT SCHEME?

According to the Securities and Exchange Regulator of Cambodia (“SERC”), a Collective Investment Scheme is the pooling of fund through the issuance of fund units or through electronic system including crowdfunding or other forms as approved by the SERC for establishing public funds, private funds, or real estate investment trust.

The fund collected is to be used and managed by a Fund Management Company to generate returns in profits, rights, or assets for each of investors invested in the fund.

The sale of fund units, the recordal of fund units’ ownership and valuation of fund assets, and the custody of the collected funds is responsible by each specific actor who shall obtained prior approval from the SERC to operate in the CIS.

III. ACTORS IN COLLECTIVE INVESTMENT SCHEME

There are 4 main actors to operate CIS namely:

  1. Fund Management Company;
  2. Fund Distribution Company;
  3. Fund Administrator; and
  4. Trustee.

 

  1. FUND MANAGEMENT COMPANY

Fund Management Company has the role to establish and register each fund with SERC and subsequently, manage the funds raised in order to generate returns in accordance with the trust agreement, prospectus (or disclosure document), and investment policy for each registered fund.

The Fund Management Company must obtain a license to operate public fund from SERC. This Fund Management Company shall have sufficient Fund Management Representative(s), natural person(s) who shall obtain a license through qualification program prepared by SERC, to manage the fund.

  1. FUND DISTRIBUTION COMPANY

Fund Distribution Company has the role to sell, redeem or settle the fund units of the fund. Fund Distribution Company may also provide consultation services to public investors concerning the investment in any funds of CIS to public investors.

The Fund Distribution Company must obtain a license to operate its activities in CIS from SERC. This Fund Distribution Company shall have sufficient Fund Selling Representative(s), natural person(s) who shall obtain a license through qualification program prepared by SERC, to sell the fund units to public investors.

  1. FUND ADMINISTRATOR

Fund Administrator is a company having the roles as follows:

  • Transferring the ownership over the fund units between unit holders;
  • Calculating the investment trust property of the fund; and
  • Valuating the net asset value of the fund and setting the price for each fund unit.

The Fund Administrator must obtain a license to operate its activities in CIS from SERC.

  1. TRUSTEE

Trustee is a trust company (in collective investment scheme) having the roles as follows:

  • Acting as the legal representative over the investment trust property of the fund;
  • Manage and safeguard the investment trust property of the fund;
  • Acquire and dispose of the investment trust property according to the trust agreement, guideline and/or related regulations on the management of the investment trust property of the Fund Management Company;
  • Settle any redemption, profit, dividend, interest or other benefits of the fund units;
  • Monitor any guideline in relation to the management of the investment trust property and investment decision of the Fund Management Company;
  • Monitor and actively oversee, and ensure that the operation and management of CIS are in accordance with the existing laws and regulations.

A Trust Company who wishes to operate as a Trustee in CIS must obtain additional approval from SERC (in addition to its existing license from the Trust Regulator).

IV. ESTABLISHMENT AND REGISTRATION PROCEDURE OF CIS FUND

Fund Management Company is the key actor in establishing and registering of a CIS fund. There are 2 main approvals for a Fund Management Company to obtained from SERC before a fund can be operated.

A. Establishment of CIS Fund

Fund Management Company who wishes to create a CIS fund shall request for the establishment to the SERC.

Fund Management Company shall submit the application for the establishment of a CIS fund along with other documents and information as follows:

  1. A disclosure document (or prospectus);
  2. A collective investment contract (or trust agreement);
  3. Investment policy of the fund which details the purpose and the maximum anticipated fund to be raised from public investors;
  4. Number of unit holders for each type of CIS funds to be established; and
  5. Other requirements for each type of CIS funds as required by SERC.

Other required documents:

  1. Articles of incorporation of the Fund Management Company;
  2. Appointment letter of Fund Management Representative;
  3. Agreements between Fund Management Company with Trustee, Fund Distribution Company, and Fund Administrator for the proposed fund;
  4. Confirmation letter of Trustee on the opening of a separate bank account specifically for the proposed fund; and
  5. Other documents for each type of CIS funds as required by SERC.

B. Issuance of CIS Fund Units

Within 60 (sixty) days after obtaining approval for the establishment of CIS Fund from SERC, Fund Management Company shall commence their fund unit issuance. This issuance shall be conducted through the Fund Distribution Company.

C. Registration of CIS Fund

Within 7 (seven) working days after the completion of the issuance, Fund Management Company shall register the fund with SERC and provide (i) outcome report, (ii) list of investors, (iii) account report issued by Trustee, and (iv) others documents as required by SERC. Subsequently, within 5 (five) working days, Fund Management Company shall work with Fund Administrator to register the fund unit ownership for all investors.

At least 5 (five) working days prior to the subscription of fund units, Fund Management Company shall provide official notification via approved means by SERC on name of issuing company, number and types of issued fund units, place for subscription and information, subscription date, and other statements for public information.

V. PORTFOLIO MANAGEMENT OF CIS FUND

A. Permitted Investment

Upon successfully registered CIS funds with the SERC, Fund Management Company may manage the CIS funds for the following investments:

  • Bonds, including government bonds and derivatives;
  • Deposits and financial instruments;
  • Other investment instruments and financial instruments permitted by SERC.

FMCs are also permitted to invest in foreign markets that are:

  • permitted financial markets;
  • serves the public interest;
  • contains adequate market information; and
  • permit the transfer back of income or funds from such markets.

B. Prohibited Investment

A licensed Fund Management Company who has established and registered CIS funds with SERC shall not use such funds for any of the following activities:

  • use CIS funds for lending or borrowing activities; or
  • use CIS funds for participating in or purchasing equity securities of other CIS funds.

VI. OBLIGATIONS OF FUND MANAGEMENT COMPANY

A. Ownership and Price of Fund Units

Fund Management Company shall work with Fund Administrator to:

  • update ownership status over fund units upon notification of any transfer or change;
  • regularly, as per SERC’s requirement, evaluate the Net Asset Value (NAV) for each Fund Unit of each CIS Fund with accuracy and independence;
  • inform of such unit price to the Trustee; and
  • report to SERC, Trustee and Fund Distributor on any inconsistency of evaluated NAV.

B. Operation of CIS Fund

While managing a CIS Fund, Fund Management Company is required to:

  • create, implement and maintain liquidity risk management policy;
  • determine suitable liquidity for redemption and other liquidity policy of the fund;
  • updating the Disclosure Document annually and publish to the public; and
  • regularly publishing the price of issued fund units on their website or with permitted means given by SERC.

C. Reporting

Fund Management Company shall:

  • work with Fund Distributor to inform SERC and unit holders of any change to the trust agreement, Fund Management Company or Trustee, risk factors, dividend distribution policy, investment policy, fee or expense, and other matters affecting the attractiveness of the fund;
  • provide monthly, quarterly and annual report to SERC;

D. Advertisement and Road Show

Fund Management Company shall request for approval from SERC for any advertisement and dissemination of information related to CIS fund unit issuance.

After such approval, Fund Management Company shall accordingly promote and hold a road show as authorized by SERC.

We hope that the above legal brief is helpful for your investment and help you to invest more confidently.

 

Disclaimer

The article is merely for general information purposes. It does not constitute a legal advice on the subject matter. If you have any question or need any assistance, please feel free to contact us:

NOEUM Sokvichhai,

Partner,

Managing Director

sokvichhai.noeum@sithisak-lawoffice.com

+855 12 826 785

 

 Mr. Sokvichhai has more than 8 years of experiences in labour, corporate, commercial and investment advisory in Cambodia. He actively advices and assists various businesses in commercial, tax, and labour registration, business licensing, products registration & distribution, business recapitalization & restructuring, and mergers & acquisitions transaction. He also has particular experiences in advising collective investment fund and trust business, initial public offering, bond issuance, investment incentives & qualified investment project, and labour & employment related issues. Sokvichhai also assists major business in preparing various complex commercial agreements.
TONG Lin,

Senior Legal Advisor,

Head of Banking, Finance and Capital Markets

tong.lin@sithisak-lawoffice.com

+855 98 888 293

 

 With the experience in the legal field for over five years, Lin’s practices concentrate on corporate, commercial, banking and capital markets related matters. At the present, Lin is actively providing legal services to local and international financial institutions including providing legal advice, preparing related financing documents, security documents and other legal matters. He is also advising to several renown enterprises with regard to their proposed equity and debt securities, public funds issuance under collective investment scheme, and trust.

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