1. Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and
venture capital industry.
If you would like to discuss any of the points we raise below, please contact me or one of
our other lawyers.
Claire Cummings
020 7585 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com
EQUITY ISSUES
Asset stripping under the AIFMD
The AIFMD rules on asset stripping by private equity AIFMs could impose additional
restrictions on distributions, capital reductions, share redemptions or acquisition of own
shares by ‘controlled’ companies, depending on jurisdiction. The provisions set out in
Article 30 of the AIFMD require that, when an AIF individually or jointly acquires
‘control’ of an issuer or non-listed company, for 2 years following the acquisition of
control the AIFM must use its best efforts to prevent (and it is prohibited from voting in
favour of or otherwise facilitating or supporting) any such ‘asset stripping’ actions.
The asset stripping requirements apply to both non-listed companies and issuers and relate
to:
(i) any distribution to shareholders by the company, where net assets are or would become
lower than the amount of subscribed capital, plus undistributable reserves;
(ii) any acquisition by the company of its own shares if this would have the effect of
reducing its net assets below the same limit; and
(iii) any distribution to shareholders by the company which would exceed the amount of

2. the company's distributable profits at the end of the previous financial year (plus profits
brought forward and distributable reserves), net of any losses and any amount moved to
undistributable reserves.
There are a number of limited exemptions for acquisitions of own shares and capital
reductions. The provisions only apply to portfolio companies whose registered office in
the EU.
If any acquisition or transaction triggers control of a particular company (directly or
through a subsidiary), then the 2 year timeframe begins in relation to that company and
this may have an impact on exit strategies and deal structuring for private equity AIFMs.
These restrictions appear to be triggered only on the first acquisition of control and not
when moving through a higher control threshold.
‘Control’ for the purposes of the AIFMD depends on whether the company is a non-listed
company or an issuer. For non-listed companies, control means control of more than 50%
of the voting rights. For an issuer, control refers to the threshold for a mandatory bid
under the Takeover Directive, which varies between Member States - in the UK, this is
30% of the voting rights.
The provisions do not apply to special purpose vehicles investing in real estate or to SMEs
(small and medium enterprises).
This document is for general guidance only. It does not contain definitive advice.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
17 March 2014