Vol 5 (2008) - Issue 6

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Establishing Funds in Gibraltar

Introduction

Many private equity and property schemes have been established as Gibraltar funds. There may well be less of these established in the short term because of the current worldwide global credit crunch.

However, as a result of the difficult economic conditions, distressed asset and distressed debt funds are on the increase. By their very nature, such funds need to be established quickly so as to take advantage of opportunities which present themselves in a volatile market.

Gibraltar’s legislation allows lightly regulated funds to be set up quickly and ready to do business within 14 days without the need for prior approval from the regulator. Gibraltar could, therefore, provide the answer for such funds.

Not only can Gibraltar funds be set up quickly and cost-effectively, they also offer familiarity to the UK practitioner in that Gibraltar is an English law jurisdiction. Not least, there are also tax benefits for investors which can be particularly welcome during an economic slowdown.

In addition, Gibraltar has a high quality infrastructure in that it has major international banks, accountancy firms and skilled financial services professionals and lawyers who are able to service the funds industry.

All of the above has made Gibraltar an increasingly attractive funds location. Although reference is made below to ‘authorised schemes’ and ‘recognised schemes’ (as they are able to operate in and from Gibraltar), the main focus of this paper is to provide information on the establishment of a private scheme and an experienced investor fund in Gibraltar.

Firstly, it is useful to set out Gibraltar’s status as an EU territory.

Gibraltar within the EU

Gibraltar is an overseas territory of the United Kingdom and is part of the European Union by virtue of Article 299(4) of the Treaty of Nice. It is also a part of the European Economic Area (the ‘EEA’) by virtue of the UK Treaty of Accession. Entities established in Gibraltar can therefore take advantage of European rules on the free movement of services.

As long as a Member State has implemented legislation giving effect to relevant European Directives, an entity in that Member State will be able to provide its services or operate throughout the EU and the EEA states. Gibraltar entities enjoy passporting rights into the EU and the EEA single market in respect of investment services, insurance and banking.

Additionally, Gibraltar entities are able to provide services within the EU which are not regulated by relevant directives provided they comply with the laws of that Member State.

There is no other offshore finance centre that can claim to have these advantages.

Legislation enabling the establishment of funds in Gibraltar

The Financial Services (Collective Investment Schemes) Act 2005 (the ‘CIS Act’) regulates and sets out the basic framework for the promotion, establishment and operation of all funds (referred to in the legislation as collective investment schemes) in Gibraltar.

The Financial Services (Collective Investment Schemes) Regulations 2006 (the ‘CIS Regulations’) deals with the detail of the regulatory regime.

The Financial Services (Experienced Investor Funds) Regulations 2005 allows and regulates experienced investor funds.

The Protected Cell Companies Act 2001 allows funds to be set up so that there is a segregation of assets and liabilities in different cells in an umbrella structure with a number of sub-funds.