Foreign investor sues BSEC over mutual fund tenure extension
The High Court has recently issued a rule calling upon the BSEC, ICB and asset manager of a closed-end mutual fund to explain why a decision to extend the fund’s tenure should not be declared illegal.
Closed-end mutual funds are investment tools that pool a fixed amount of money for a certain period from investors and re-invest it into stocks, bonds and other assets.
Hearing a writ petition filed by a foreign investor, the HC also sought to know why the respondents will not be ordered to liquidate the EBL First Mutual Fund and distribute the proceeds among unitholders.
It also ordered the asset manager, Bangladesh Race Management Private Company, not to take any asset management fee until the ruling was disposed of. The Investment Corporation of Bangladesh (ICB) is the fund’s trustee.
The City of London Investment Management Company (CLIM) filed the writ petition on October 21.
In it, the CLIM said the fund manager did not seek unitholders’ approval of the extension, which was a violation of rule 50B of the Bangladesh Securities and Exchange Commission (Mutual Fund) Rules, 2001.
Moreover, the extension contradicted what is stated in the fund’s prospectus, it said.
According to the Bangladesh Securities and Exchange Commission (BSEC) rules, the tenure of a closed end mutual fund will have to be fixed before the scheme can be announced.
If a fund manager wants to extend the tenure later on, it will have to hold a vote among unitholders through an extraordinary general meeting and get three-fourths of the votes in its favour, the rule adds.
The fund’s prospectus states its tenure to be of 10 years and mentions that the voting rule would come into effect for any tenure extension.
Moreover, on January 24, 2010, the stock market regulator fixed the tenure of all closed end mutual funds at 10 years “realising the benefits of investors and development of the capital market”, said its circular.
However on September 16 last year, the BSEC extended the tenure of closed-end mutual funds by another 10 years following calls from some asset management companies.
This led to many asset managers extending their funds’ tenure.
On August 5 this year, Bangladesh Race Management Private Company decided to extend EBL First Mutual Fund’s tenure by another 10 years.
The tenure extension was a blow for the CLIM as it had invested in it with hopes of getting the profits through the fund’s liquidation this year.
So immediately after the tenure extension, the CLIM sent a legal notice to the stock market regulator, Bangladesh Race Management Private Company and the ICB before suing them.
Saifur Rahman, spokesperson of the BSEC, said any investor can exercise his/her right of filing a writ petition. “Our law department is working on it,” he added.
The HC bench comprised Justice Moyeenul Islam Chowdhury and Justice Khandaker Diliruzzaman.
Comments