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The SICAV in the light of the latest amendment to the Act on Investment Companies and Investment Funds

Czech Republic: Will the amendment to the Act on Investment Companies and Investment Funds make the domestic fund business even more attractive?

An amendment to the Act on Investment Companies and Investment Funds is set to come into force in June this year, which will introduce a host of interesting new concepts to the world of investment funds. The present article focuses on those changes which concern the 'joint-stock company with variable capital' (SICAV).

Investment funds in the form of a SICAV need no longer submit to the one-tier system (which comprises a CEO and an administrative board) as the obligatory system of corporate governance, but will newly be able to choose the two-tier system of corporate governance, i.e., a system consisting of a board of directors (of possibly several members) and a supervisory board, like regular joint-stock companies.

An interesting change is the reduction of the minimum investment of qualified investors to one million crowns, subject to confirmation by the fund administrator according to which the latter has reason to believe that the investment reflects the investor's financial background, goals, skills, and experience.

Another novelty is the minimum amount of subscribed capital. A 'regular' joint-stock company must maintain a capital stock of at least CZK 2 million. By contrast, the subscribed capital of a SICAV must be at least one Czech crown (this is without prejudice, however, to the obligatory minimal starting capital within the meaning of Sec. 29 of the Act).

The Articles of Association of a SICAV will newly have to stipulate a lower and upper threshold for the fund's capital stock (thus defining the ambit within which the SICAV may issue and purchase investment shares). The introduction of a lower limit was presumably meant to act as an additional element of protection for investors, but may possibly backfire: if the purchase of investment shares were to be suspended (which is not uncommon when problems occur), then the existence of this limit could prevent certain investors from exiting the fund in time and leave them with essentially worthless shares on their hands.

In spite of the above contentious aspect, we may hope that the new regime will on the whole contribute to making the investment fund business in this country even more attractive.

Source: Act No. 240/2013 Coll.