Registration under section 186 of the Capital Market Act 2015 is what makes a unit trust a “registered scheme” and brings it under Part V of the Act. Deregistration removes it from the Commission’s record. It is a separate step from winding up: a scheme is usually wound up first and deregistered afterwards, but it can also be deregistered for non-compliance while it still has members and property.
Voluntary deregistration by the trustee
Section 271 allows the trustee to lodge an application for deregistration, but only in narrow circumstances.
The trustee may only apply where (a) the scheme has 20 or fewer members, counted under section 187(4), all the members agree that it should be deregistered, and the scheme is not required to be registered because it was promoted by someone in the business of promoting schemes or is part of a group the Commission has declared closely related; or (b) the Commission has made a closely-related-schemes determination but the scheme is nonetheless not required to be registered, and all members agree; or (c) the scheme “is not a managed investment scheme”.
The common case is a small scheme that no longer needs registration. A church fund that started with 40 contributing congregations and has shrunk to 15, with no professional promoter behind it, may ask to leave the register if every remaining member agrees. In counting the 20, joint holders count as one member, and units held on trust are attributed to a beneficiary who is presently entitled or controls the trustee (section 187(4)). The third gateway covers arrangements registered by mistake that are not managed investment schemes at all.
If the Commission is satisfied that the application complies, it must publish notice of the proposed deregistration in a daily newspaper and in the National Gazette (section 271(3)). Once one month has passed since the Gazette notice the Commission may deregister the scheme, and must tell the applicant it has done so (section 271(4) and (5)). The month gives a member who says he never agreed time to object.
Section 271 assumes that a scheme with 20 or fewer members can lawfully operate unregistered, as section 187 implies. Section 184(1), however, forbids operating any scheme unless it is “approved and registered”. Trustees of small schemes should seek advice before relying on deregistration to escape Part V; see when registration is required.
Deregistration by the Commission
Section 272(1) lets the Commission decide to deregister a registered scheme on any of six grounds.
| Ground | Section |
|---|---|
| The scheme has no trustee meeting section 189 (a licensed corporation as responsible entity) | 272(1)(a) |
| The scheme has no trust deed meeting sections 210, 211 and 212 | 272(1)(b) |
| Scheme property is not clearly identified as such and held separately from the trustee’s and other schemes’ property | 272(1)(c) |
| A response to a return of particulars is at least six months late, no other documents have been lodged for 18 months, and there is no reason to believe the scheme is operating | 272(1)(d) |
| The scheme’s review fee is unpaid 12 months after its due date | 272(1)(e) |
| The scheme has been wound up | 272(1)(f) |
The first three grounds target schemes that have lost the features Part V demands: a licensed trustee, a compliant deed and segregated assets. A scheme whose trustee has had its licence revoked with no replacement found falls under paragraph (a). The fourth and fifth deal with dormant schemes; the sixth tidies up after a winding up.
Notices and waiting periods
Before deregistering, the Commission must give notice of the proposed deregistration to the trustee, to any other person winding up the scheme, and to the members or unit holders, and must publish it in the National Gazette and in a daily newspaper (section 272(2)). The notice must state the period at the end of which the Commission proposes to act (section 272(3)). For the first five grounds the Commission may deregister at the end of the period stated in the Gazette; for a wound-up scheme it may do so once two months have passed since publication (section 272(4)). The Commission need not notify a person whose address it lacks (section 272(5)), and must tell everyone it did write to once the deregistration happens (section 272(6)).
Section 272 is loosely drafted. The terms “return of particulars”, “review fee” and “review date” appear nowhere else in the Act. Paragraph (d)(iii) speaks of the trustee having no reason to believe the scheme is operating, where the Commission must be meant. Subsection (3) refers to a notice under subsection (1) rather than (2), and paragraph (e) appears in both limbs of subsection (4), so it is unclear whether an unpaid review fee attracts the Gazette period or the two-month period. Trustees facing a notice should treat the longer period as the safe one and respond within it.
What deregistration means
Once deregistered, the scheme is no longer “approved and registered by the Commission”, so continuing to operate it breaches section 184(1), punishable by a fine of up to K10 million or ten years’ imprisonment, or both. Section 187(5)(b) provides a safe harbour: a person is not operating a scheme merely because he “is taking steps to wind up the scheme or remedy a defect that led to the scheme being deregistered”. The trustee still holds whatever scheme property remains on trust for the members under general trust law, and must either wind the scheme up or seek reinstatement under section 273. A member who thinks the Commission acted wrongly may also seek review of the decision; see challenging a Commission decision.
Sources
- Capital Market Act 2015 — ss 184, 186, 187, 189, 210–212, 271–273
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.