Asia

Liquidation Insurance

Liquidation Insurance provides cover to unlock capital held in reserves for legacy and contingent residual liabilities where investment funds are reaching the end of their fund lifespan or where corporate groups are looking to be rationalised.

As investment funds near the end of their lifecycle, investors can become frustrated by capital tied up for residual liabilities. Liquidation Insurance can be used as a strategic tool for fund managers to maximise return, reducing fund administration costs and ultimately allowing a more efficient distribution of proceeds to investors.

The BMS Private Equity, Mergers & Acquisitions and Tax team works closely with you and your advisers to ensure that Liquidation Insurance provides comprehensive coverage against all outstanding residual liabilities thereby providing an effective method to accelerate a wind up or liquidation of a fund, distribute proceeds and ensure a clean break.

Policy Benefits

Facilitates the accelerated winding up or voluntary liquidation of a private investment fund or a corporate structure.
Helps to reduce ongoing administration and reporting costs of the original investment structure.

Maximises the distribution of cash proceeds from fund structures helping to improve rates of returns.
Protects fund managers against any personal liability they may face in the relevant jurisdiction.

This policy can:

Be taken out by fund managers or the general partner of the fund covering the residual liabilities.
Cover all financial losses arising from warranties and certain indemnities given as part of its historical divestments.
Have either the seller or the specific investment fund named as the insured. Furthermore, liquidators can be named as a party to the policy to help aid the effective winding up.
Cover both share and asset disposals.

How does it work?

The policy term matches the period of the outstanding residual liabilities and can last up to 10 years for certain matters.
Coverage can generally be from “ground up” i.e. zero or minimal excess.
A one-off premium (typically 1%-3% of the policy limit) is payable within 20 business days of the inception of the policy.

The process for putting the policy in place is straightforward given that a number of these liabilities would be near their expiry. If vendor due diligence was prepared and or any analysis undertaken on the underlying residual liability, then this would speed up the underwriting process.