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Understanding the Mauritius variable capital company

06 December 2022

Rubina Toorawa, Regional Head of Mauritius at Apex Group featured in Thomson Reuters Accelus Regulatory Intelligence.

The introduction of the variable capital company (VCC) is an enhanced proposition to the Mauritius protected cell companies, expanding the offerings of Mauritius International Financial Centre, increasing its competitiveness as a hub for fund management activities and upscaling to meet the evolving demands of market participants. The Variable Capital Company Act was introduced to the National Assembly, passed on April 12 and was gazetted on April 15, 2022.

What is the Mauritius VCC?

A VCC is a new vehicle structured for investment funds with the specific ability to operate sub-funds and/or special purpose vehicles (SPVs) within the same legal entity. It can either opt to have a single sub-fund or have multiple sub-funds, where each sub fund may opt to have a legal personality distinct from the VCC. The sub-funds may also have one or more SPVs attached to it, providing for the necessary structuring flexibility.
This unique feature of the VCC allows fund managers to operate multiple offerings, whether open-end and/or closed end, through a single entity but with the advantage of segregation and ring-fencing of assets and liabilities of each sub-entity. The VCC offers investment funds a compelling alternative to the existing fund structures available in other jurisdictions as well as solving some of the common constraints of these existing structures.

What are the important features of the VCC?

Through the segregation of subs funds/SPVs, this ensures the ring fencing of the assets and liabilities. As such, any legal proceeding in respect of a sub-fund or special purpose vehicle, shall be restricted to that sub-fund or special purpose vehicle only.

In addition, the ability to have separate legal personalities within the VCC is a defining characteristic of the vehicle which further enhances the ring-fencing feature of the VCC. This means that each sub-fund/SPV can opt to have distinct/separate legal personality (through an election) from the VCC which are incorporated as a company under the Mauritian Companies Act. The VCC can hence be regarded as providing more robust segregation of assets and liabilities (than a PCC), especially by creation of incorporated sub-funds. This ensures and provides greater certainty about ring fencing of a sub-fund/SPV's assets and liabilities in case of a claim or insolvency, as well as, prima facie, the capability to spin off a separate legal personality from the structure at the right time.

What are the main benefits of the VCC?

Under a VCC structure, fund promoters can carry out business through one or more sub-funds and SPVs, and there is no limit on the number of sub-funds/SPVs that can be created. Sub-funds can be collective investment scheme (CIS) and closed-ended funds (CEF) or special purpose funds all within one structure.

This means that managers can have multiple strategies within same structure, achieving economies of scale in terms of regulatory fees, and synergies on compliance costs. Adopters of the VCC can even house the special purpose fund, which is a tax-exempt vehicle.

In addition, the VCC has the flexibility to have SPVs ancillary to sub-funds, smoothly accommodating co-investment vehicles or subsidiaries in PE structures. The scope for investment is also widened by permissions granted by the VCC for cross sub-fund investments and cross special purpose vehicle investments within the same VCC. An existing company in Mauritius may be converted into a VCC and a non-Mauritian company may be domiciled in Mauritius as a VCC. This means that existing traditional structures can benefit from the features of the new VCC vehicle, and those looking to redomicile from multiple jurisdictions can now house all structures under single vehicle.

How does the Mauritius VCC compare to the Singapore VCC?

While sharing some commonalities other variable capital structures such as the recently introduced Singapore VCC and the existing Guernsey ICC, the Mauritius VCC has a number of distinct features.
In contrasts to new or standalone legislation in other jurisdictions, the Mauritius VCC Act hinges on the Companies Act 2001, which has a proven track record and been fined tuned over decades to meet current requirements.

Unlike the Singapore VCC, sub-funds may each adopt different acceptable accounting standards to the Mauritius VCC fund. This means that if the VCC is an umbrella VCC, each sub-fund is not obliged to adopt the same accounting framework consistently, providing investors with flexibility.

The Mauritius VCC sub-funds may opt to have a legal personality separate from the variable capital company and a sub-fund deemed to be separate from VCC is liable for tax on its own income. By contrast the Singapore VCC has legal personality whilst the sub-funds have no legal personality and for tax purposes the VCC recognised and taxed as a single entity.

Finally, two crucial advantages of the Mauritius VCC are the ability to convert an existing Mauritius company into a VCC and the speed of license approval which can be expected within six to eight weeks.

What role do service providers play?

Service providers in Mauritius are playing a crucial role in supporting funds looking to adopt the VCC structure. It is essential that managers adopting the VCC have access to the right advice, expertise and operational best practice.

Experienced service providers with a strong local presence are required to help their clients navigate the structure, so that funds can come to market swiftly and efficiently, as well as understanding and complying with the specific requirements of an umbrella structure.

Economies of scale can be achieved with common services providers and functionaries including custodians, banks, brokers, MLRO/ compliance officer, directors of the VCC which are also the directors of each of its sub-funds or SPVs.

Service providers can offer support including:

  • Arranging for the registration and incorporation of the VCC including drafting and reviewing constitutive and application documents;
  • Assisting with licensing of the VCC, including reviewing of legal documents from a local perspective, drafting of governance
  • documents and liaison with the authorities;
  • Enabling the conversion of existing companies in Mauritius or the redomiciliation of foreign companies into VCC;
  • Continuing compliance support, company secretarial, accounting, administration, directorship and registered office services.

What is the outlook for the VCC?

The VCC has cemented Mauritius' value proposition for cross-border investors. It is a legal structure that can be used in both the traditional and alternative investment fund market space and we expect that the VCC will garner further interest from private wealth managers and institutional investors due to its capital variability and cost efficiency. As investors become more familiar with the Mauritius VCC, it will play an important role in attracting capital flows and will further support Mauritius' role as an international financial jurisdiction.

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