A strategic combination of a series of initiatives and programmes geared towards incentivising start-up business coupled with Malta’s solid reputation as a stable Eurozone economy and a generally business-friendly and tax-efficient jurisdiction, has effectively solidified Malta’s significance as a serious contender in the global start-up network and, accordingly, the jurisdiction’s start-up ecosystem has experienced considerable growth over the past years.
In the infinitely complex and increasingly rule-laden world of hedge funds, Malta’s Professional Investor Fund (PIF) regime (which offers a light-touch, more flexible regulatory regime than other EU-wide regulation, based on the participating investors’ wealth and experience), has effectively secured the survival of start-ups and ‘smaller’ funds, which have come to be synonymous with Malta’s fund offering and which would otherwise be overwhelmed by the regulatory load and related costs inherent in compliance with fund structures other than the PIF.
whilst the RICC platform structure could also be beneficial for larger funds, it is particularly relevant to start-up funds to the extent that it offers an ‘incubation’ style set up, whereby the RICC provides standardised start-up services to the ICs established within its platform structure
This start-up friendly regime is bolstered by the ‘cellular’ concept accommodated under the Companies Act (Recognised Incorporated Cell Companies) Regulations which, inter alia, introduced a ‘platform’ type of model comprising a recognised incorporated cell company (RICC) providing standardised administrative services to any number of incorporated cells (IC), each duly licensed as a collective investment scheme or fund, which administrative services largely consist of routine contractual matters and start-up support.
Accordingly, whilst the RICC platform structure could also be beneficial for larger funds, it is particularly relevant to start-up funds to the extent that it offers an ‘incubation’ style set up, whereby the RICC provides any or all of the following standardised start-up services to the ICs established within its platform structure:
- Provision of administrative services related to the establishment of incorporated cells or funds;
- Procurement of external service providers to the fund and coordination of regulatory approval of any changes thereto;
- Negotiation of service provision agreements and changes thereto;
- Submission to the Malta Financial Services Authority (MFSA) of any changes or amendments to model agreements and submission of any new model agreements negotiated with service providers for the approval of the MFSA;
- Signature of tripartite agreements between service providers, the RICC and an IC based on ‘pre-approved’ model agreements;
- Standardisation of any other documentation to be used by ICs/ funds;
- Approval and joint signature of any applications for licences (including variations, extensions thereof) to be submitted by or on behalf of ICs which are in the course of being formed;
- Provision of written declarations identifying any changes to model agreements already submitted to the MFSA;
- Provision of ancillary services as may be required by the IC/ fund (subject in all cases to MFSA approval).
A key advantage of a RICC platform is the ‘standardisation’ of fund documents, such that functionary agreements and regulatory consents in respect of standardised fund documentation will be in place upon the setting up of the RICC platform structure and accordingly a new cell/ fund can be added at a fraction of the time that would be required were the fund to be established from scratch as a ‘stand-alone’ entity.
A key advantage of a RICC platform is the ‘standardisation’ of fund documents, such that … a new cell/ fund can be added at a fraction of the time that would be required were the fund to be established from scratch as a ‘stand-alone’ entity
Essentially, a RICC is a limited liability company which must obtain the appropriate recognition to act as such from the MFSA in terms of article 9A of the Investment Services Act and which is established for the sole purpose of providing any of the above-mentioned administrative services and start-up support to collective investment schemes (or funds).
Once duly authorised, establishing an IC or a fund within a RICC’s platform structure is relatively straight forward, such that a new IC may be incorporated by virtue of a resolution of the RICC’s board of directors (a “cell resolution”) sanctioning, inter alia, the provisions of the memorandum and articles of association of the IC and the execution thereof by the RICC. In turn, an IC of a RICC is constituted as a collective investment scheme in its own right and requires a licence to operate as such from the MFSA.
Notably, from a legal and asset planning perspective, an IC is endowed with separate legal personality and is not a subsidiary of its RICC solely by virtue of the fact of it being an incorporated cell of its RICC. The key legal principle in this respect is that assets and liabilities of each IC are distinct and ‘ring fenced’ from those of other ICs within the platform and the RICC itself such that the assets of each individual IC will not be available to the creditors of any other IC.
assets and liabilities of each IC are distinct and ‘ring fenced’ from those of other ICs within the platform and the RICC itself such that the assets of each individual IC will not be available to the creditors of any other IC
The RICC framework is structured to allow ICs to migrate in and out of the RICC they share with other ICs and either relocate to another RICC (by means of a relocation agreement setting out the terms upon which the said relocation is to take place) or establish themselves as separate independent schemes.
The key advantages of Malta’s RICC Regime can be summarised in the following salient points:
- Efficiency and regulatory expediency afforded by the ‘standardisation’ of fund documents;
- Complete segregation of ICs and “ring fencing” of assets;
- Possibility of ICs to establish segregated sub-funds;
- Cross-IC investment and intra-IC contracting permitted;
- Recognition of ‘mixed’ RICC platforms which may incorporate and service any type of fund (Retail UCITS, Retail Non-UCITS, Professional Investor Funds and/or Alternative Investor Funds);
- Possibility for the RICC to generate revenue streams from a platform fee; and
- Comprehensive relocation/ migration provisions.
The RICC model represents a manifestation of the Maltese legislator’s continued efforts in the further development of a modern and coherent legal framework designed to accommodate a range of various fund structures, including start-up funds (which are not afforded such incentives in other EU jurisdictions), and effectively serves to bolster Malta’s position as a European financial services hub and an ideal environment to launch your business.
This Article was first published on Money Magazine, December 2015.