The legislation which provides for the establishment of the Irish Collective Asset-management Vehicle (the ICAV) has now been passed by both Houses of the Oireachtas. The ICAV is a new form of corporate vehicle specifically tailored for the funds industry. The ICAV will sit alongside the available fund structures in Ireland, namely the variable capital company (VCC), the unit trust, the common contractual fund (CCF) and the investment limited partnership (ILP). The Central Bank of Ireland (Central Bank) will act as both the incorporating and authorising body for the ICAV. ICAVs may be stand alone or umbrella structures.
What are the key advantages of an ICAV?
- the ICAV will benefit from being subject to a separate and distinct corporate fund regime which has been drafted specifically for use by the funds industry. As such, the ICAV will not be subject to a number of the general Irish and European company law requirements which are applicable to VCCs by virtue of their incorporation under the Companies Acts but are generally more appropriate to trading companies. The ICAV should, accordingly, represent a simpler and more cost effective choice of corporate vehicle for funds.
- Additionally, and of particular interest to managers of funds targeting US investors, the ICAV will be able to elect its classification under the US ‘check-the-box’ taxation rules. This will allow an ICAV to be treated as a partnership for US tax purposes and so avoid certain adverse tax consequences for US taxable investors. This is in contrast to the status of the VCC which is not able to ‘check-the-box’ for US tax purposes. This gives rise to potential treatment as a Passive Foreign Investment Company (PFIC) for US investors which, depending on the precise status of the investor and the elections it makes, can give rise to a greater tax and administrative burden than if the fund is able to ‘check-the-box’.
There are some operational benefits when compared to an investment company including:
- Umbrella ICAVs may prepare separate accounts in respect of each sub-fund (with different year-ends). It will not be necessary for the ICAV to produce consolidated accounts as a VCC is obliged to do. This will give added flexibility and may reduce costs.
- ICAVs may dispense with the ability to hold an annual general meeting by giving at least sixty days prior written notice to all of its shareholders.
- There will be no requirement to obtain prior investor approval where changes need to be made to the instruments of incorporation (equivalent to articles of association), provided the ICAV’s depositary can certify that the changes do not prejudice the interests of shareholders.
- ICAVs will not be subject to risk spreading/ diversification requirements, which currently apply to VCCs under Irish company law. This will be of interest to QIAIFs, which are subject to AIFMD risk diversification requirements.
We hope to see the final text of the legislation next week. The Taoiseach will then send the Bill to the President of Ireland for signing and enactment. In turn, the Minister for Finance will sign a commencement order commencing the Act and will also bring in Regulations prescribing jurisdictions for the purposes of migrations and so on. The passing of the ICAV bill through all stages in the Oireachtas represents another important step in putting the ICAV regime in place.