UCITS IV cross-border mergers – general overview

The Ucits IV directive covers both domestic and cross-border fund mergers of Ucits funds, involving all kinds of funds – contractual, corporate and unit trusts. Mergers can involve entire umbrella fund structures or only certain sub-funds. The merger techniques used may vary from one EU member state to another (not all countries offer all three types of legal structure, for instance).

The laws of the member state in which the resulting merged entity will be domiciled will guide the merger, but the operation is subject to the authorisation of the regulator of the fund that is transferring its assets and liabilities to another Ucits. The directive’s provisions do not apply where one or both of the merging funds is not a Ucits.

The directive offers three types of merger scheme. In the first case a Ucits or some of its sub-funds, on being dissolved, transfer their assets and liabilities to another existing Ucits; in the second case, two or more Ucits or sub-funds, on being dissolved, transfer their assets and liabilities to a newly-created Ucits fund; in the third case, one or more Ucits or sub-funds transfer their assets and liabilities to an existing sub-fund of the same Ucits, to a newly-created Ucits, or to an existing Ucits or sub-fund. In this case the Ucits or sub-funds transferring the assets are liquidated once their liabilities have been discharged.

The directive sets out the notification process between the home regulator of the merged fund and that of the fund that will be merged into it, as well as deadlines for the merger process. The documentation should set out the type of merger and of Ucits funds involved; the background and rationale for the proposed merger; the expected impact on the unit-holders or shareholders of the merging funds; the criteria used in valuing the funds’ assets and, where applicable, liabilities; the calculation method of the exchange ratio; the planned effective date of the merger; the rules applicable to the transfer of assets and the exchange of units; and where applicable, the fund rules or instruments of incorporation of the merged Ucits.

The depositary and the auditor of fund to be merged into another must validate the criteria for calculation of assets and liabilities, the cash payment per unit and the exchange ratio. The directive also sets out the information that must be provided to unit-holders or shareholders of the Ucits that will merge into another fund.

Merger costs may not be charged to the Ucits fund unless it does not have a designated management company (i.e. it is a self-managed Ucits).