Monetary Authority of Singapore Proposes Insolvency and Winding-Up Regime for New VCC Structure

August 01, 2019

The Monetary Authority of Singapore (MAS) released a consultation paper (Insolvency and Winding-Up Consultation Paper) on 24 July pertaining to the proposed insolvency and winding-up regime (Insolvency Regime) for the Variable Capital Company (VCC) structure. This is the third in a series of consultation papers released since May 2019 pertaining to the VCC regulations, following the passage of the Variable Capital Companies Act on 1 October 2018.

The first two consultation papers dealt with anti-money laundering and countering the financing of terrorism and the operational aspects of a VCC (e.g., registration of sub-funds, “fit and proper” criteria of directors), where public consultations closed on 30 May 2019. The MAS is inviting interested parties to provide comments and feedback on the Insolvency and Winding-Up Consultation Paper by 24 August 2019.

Brief Background of the VCC

The VCC is a new corporate structure tailored for collective investment schemes. It can take the form of an umbrella structure, consisting of multiple sub-funds with different investment strategies and objectives, assets and liabilities, and investors. Introduced to encourage funds to incorporate and operate in Singapore, the VCC structure aims to enhance Singapore’s position as a full-service international fund management centre alongside global fund domicile centres such as the Cayman Islands and Luxembourg.

Summary of Key Regulations Proposed in the Consultation Paper

The table below summarises the key aspects of the proposed Insolvency Regime.


Area of Concern

Key Aspects


Insolvency and winding-up proceedings

The procedural rules applicable to the winding up of a VCC or a sub-fund of an umbrella VCC are adapted from the rules that apply to a company. Briefly:

– Winding-up applications of a VCC or a sub-fund of an umbrella VCC are commenced by originating summons supported by an affidavit, and heard in open court.

– The winding-up application is required to be advertised for seven clear days (or such longer time as the court may direct) before the hearing.

– The winding-up application and supporting affidavit shall be served upon the VCC at the registered office of the VCC (in relation to the winding up of a VCC), or upon the umbrella VCC at the registered office of the umbrella VCC (in relation to the winding up of a sub-fund of an umbrella VCC).

– When a winding-up order is made, a notice has to be advertised on the Gazette within 14 days.

– The liquidator shall submit a report to the court and will apply the assets of the VCC or the sub-fund of an umbrella VCC in discharge of the liabilities of the VCC or the sub-fund.


Distribution waterfall

Of interest to every creditor in an insolvency scenario is the distribution waterfall. One class of debt which enjoys priority over other unsecured debts is the wages or salary due to an employee, subject to a maximum amount prescribed.

For an umbrella VCC, the MAS is proposing a cap of a proportion of five months’ salary in respect of services rendered by the employee of (A) an umbrella VCC to an umbrella VCC; or (B) an umbrella VCC to the relevant sub-fund of the umbrella VCC. It is worth noting that the actual cap may be lower than that mentioned in the preceding statement, depending on computations based on certain formulas contained in the proposed regulations.


Avoidance of antecedent transactions

Often, the liquidator may wish to claw back assets previously transferred by the insolvent entity so as to expand the pool of assets available for distribution to the creditors. The liquidator may rely on certain grounds to do so, such as demonstrating an unfair preference or an undervalued transaction.

As a matter of general insolvency law, such grounds are more easily substantiated if the counterparty to the impugned transaction involves an “associate” of the insolvent party, as the liquidator is able to rely on certain presumptions or a more favourable lookback period.

The rules governing the determination of connected persons and “associates” under the proposed Insolvency Regime underscore the fact that a sub-fund does not have separate legal personality. The general purpose behind the proposed rules is that when an umbrella VCC enters into a transaction for the purpose of its sub-fund, the connected person or associate of the VCC being wound up should be determined with reference to the specific sub-fund, rather than the umbrella VCC.

As a final observation, we would highlight that the proposed Insolvency Regime for a VCC and its sub-funds is subject to further changes once the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) comes into effect. The intent is for the regime to be aligned with that of the other corporate structures in Singapore under the IRDA with appropriate adaptations.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Morgan Lewis lawyers, who are solicitors of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated ‎with Morgan, Lewis & Bockius LLP: