The vehicle’s constitutional documents should state the rights and obligations of unit holders and the manager regarding extensions (e.g., investor approval rights and changes to management fees during an extension period).
Where the manager has discretion to extend the vehicle life, the manager should disclose in the annual and quarterly reports well in advance whether it believes such an extension will be necessary.
If the manager elects to extend the life of the vehicle, the manager should provide a clear business case, including the financial benefits to the investors expected from doing so.
Where the manager wishes to extend the vehicle term with the consent of its investors, the manager should provide the following information to all investors:
- financial analysis of the effect of liquidations now as against during a delayed period;
- full impact assessment of deferred exit (e.g., debt maturities, hedging instruments, joint venture termination provisions etc.);
- cost implications;
- revised business plan for each asset;
- confirmation of the manager’s terms of appointment (including fees) during the extension period. The presumption is that fees will be discussed for the extension period.
Investors should have the right to appoint advisors to act for them jointly at the vehicle’s cost. Appointments are to be approved by the Investment Advisory Committee (IAC) or a majority of investors if there is no IAC.
In the event the vehicle life is extended beyond the original term, best practice is for the manager’s appointment to be terminable without cause with the approval of a supermajority (usually 75%) of investors at any time after the original term.