December 6, 2021

Volume XI, Number 340


December 03, 2021

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IDC Requests Additional Relief with Respect to Fund Board In-Person Voting Requirements

On September 2, 2021, the Independent Directors Council submitted a letter to Sarah ten Siethoff, Acting Director of the SEC’s Division of Investment Management, requesting at least six months’ advance notice before the SEC withdraws its current relief from the Investment Company Act of 1940’s in-person voting requirements applicable to fund boards. The IDC also requested that the SEC provide fund boards with greater flexibility regarding the 1940 Act’s in-person voting requirements on a permanent basis.

In March 2020, in response to the outbreak of the COVID-19 pandemic, the SEC issued an exemptive order providing relief from certain 1940 Act provisions, including the in-person voting requirements applicable to fund boards with respect to the approval or renewal of advisory and underwriting agreements, the approval or renewal of distribution arrangements and the appointment of auditors, subject to certain conditions. This relief was initially intended to be available only through June 2020, but the SEC issued subsequent extensions later in March 2020 and again in June 2020. In the June 2020 order, the SEC stated that the relief would terminate upon subsequent public notice, provided that at least two weeks’ notice would be given before the expiration of the relief. A summary of the SEC’s current relief is available here.

The IDC cited the continuing challenges fund boards face due to the COVID-19 pandemic, including transportation limitations, vaccination concerns and emerging COVID variants, as well as the generally favorable experience fund boards have had meeting virtually via videoconference during the pandemic. The IDC requested that the SEC not withdraw the current relief before the conclusion of the pandemic and that the SEC provide at least six months’ advance notice before such withdrawal. The IDC stated that such advance notice, among other things, would provide greater certainty and allow fund boards and other parties to develop protocols and procedures to safely and effectively return to meeting in person.

In addition, also citing the generally favorable experience fund boards have had meeting virtually via videoconference, the IDC requested that the SEC provide permanent relief from the 1940 Act’s in-person voting requirements so that fund boards would have the flexibility to meet virtually after the conclusion of the pandemic. The IDC suggested that such relief should be subject to certain conditions, including that boards adopt policies and procedures for the conduct of virtual meetings, including appropriate technology and security protocols; that directors who participate virtually be able to engage in contemporaneous communications with other participants; and that directors have the means to identify each person casting a vote virtually during a board meeting.

A copy of the IDC’s letter is available here.

© 2021 Vedder PriceNational Law Review, Volume XI, Number 288

About this Author

John Marten Investment Attorney Vedder Price Law FIrm

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

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Jacob Tiedt,Vedder Price law firm investment services attorney

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

Nathaniel Segal Investment Attorney Vedder Price Law Firm

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

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