On 29th July 2014, the Irish Minister for Finance published the Irish Collective Asset-management Vehicle (ICAV) Bill 2014. As reported in our January 2014 Funds E-zine, the ICAV structure is more suited to the needs of the global funds industry and will have several advantages over the existing corporate structure for collective investment schemes in Ireland, the public limited company (plc).
In 2011, the Irish Government acknowledged in its report entitled “Strategy for the International Financial Services Industry in Ireland 2011-2016” that product competitiveness was a challenge to the continued success of the Irish funds industry. The funds industry itself had highlighted a number of areas where the legal, tax and operating environment could be improved. In particular, Ireland did not offer a corporate structure specifically designed for investment funds, similar to the SICAV in other EU jurisdictions. Accordingly, the Irish Government committed to introduce a legal framework for a corporate fund that was not a public limited company incorporated under the Irish Companies Acts.
Two of the key drivers for the introduction of the ICAV structure in Ireland are (i) to allow investment companies avoid the reporting requirements and restrictions under Irish and European company law that investment funds structured as plcs are currently subject to; and (ii) to attract more US taxable investors to Irish-domiciled funds as the ICAV will be able to elect for classification under the US “check-the-box” tax rules so that it is treated as a transparent or flow-through entity.
Key Features of the ICAV Bill
As anticipated, the ICAV Bill has followed broadly the same lines as the General Scheme of the Bill published in December 2013.
Regulation by Central Bank
The ICAV will be regulated by the Central Bank of Ireland and may be established as a UCITS or an AIF. The Central Bank has also recently confirmed that it stands ready and able to accept ICAV structures from the moment the necessary law and regulation is in place.
The ICAV structure has been designed specifically for investment funds and as such will not be subject to much of the Irish company law and accounting rules which currently apply to Irish collective investment schemes structured as plcs. Developments in Irish and European company law will also not automatically apply to the ICAV, which should result in lower administrative costs.
‘Check-the-Box’ for US Tax Purposes
As mentioned above, the ICAV will be able to elect for classification under the US “check - the - box” taxation rules as ‘flow throughs’ for US tax purposes. In contrast to investment funds authorised as unit trusts and investment limited partnerships (which can be treated as ‘flow throughs’ for US tax purposes), plcs are currently viewed as corporations for US tax purposes and therefore are potentially subject to two levels of tax, one at the corporate level where the income is earned and a second at the shareholder level when distributions are made. An eligible entity (i.e. an entity that can elect for classification under the “check – the – box” rules), can elect for alternative, more favourable tax treatment. The ICAV will be an eligible entity for these purposes.
The constitutional document for the ICAV will be known as the ‘instrument of incorporation’, a document which will resemble the memorandum and articles of association used by a plc. A key difference to existing company law rules here is that where amendment is required to the instrument of incorporation, there will be no requirement to obtain prior investor approval where the custodian or depositary certifies that the proposed changes do not prejudice the interests of investors.
An umbrella ICAV can publish audited financial statements on a sub-fund by sub-fund basis, rather than requiring consolidated statements as is currently the case for Irish plcs. The legislation also provides for segregated liability between sub-funds.
Risk Spreading/ Diversification
The ICAV will not be subject to risk spreading/ diversification requirements, which currently apply to variable capital companies under Irish company law. This will be of particular benefit to certain Alternative Investment Fund structures.
Annual General Meetings
An ICAV will be able to dispense with holding an AGM by giving at least sixty days written notice to all of the ICAV’s shareholders.
- ICAVs will be able to issue partly paid shares.
- ICAVs can be structured as open-ended or closed-ended funds.
- ICAV QIAIFs should be able to avail of the Central Bank’s 24 hour fast track application process.
Conversion ProcessExisting investment funds structured as plcs can apply to the Central Bank to be converted to an ICAV.
As part of the conversion process the converting ICAV will need to provide the Central Bank with a number of documents including:
- Certificate of incorporation
- New instrument of incorporation and the current memorandum and articles of association
- A list setting out the particulars of the converting ICAV
- Statutory declaration of solvency made by a director
The Central Bank will not register the converting ICAV unless it is satisfied that it meets all of its requirements and the application must be accompanied by a statutory declaration by a director that those requirements have been complied with.
From the date of registration, the converting ICAV will be deemed an ICAV but will not be considered a new entity and as such the conversion process will not prejudice or affect its continuity as previously established. Any contract made or any other act or thing done in relation to the converting ICAV prior to its conversion will not be affected.
MigrationImportantly, the ICAV Bill will also provide for a mechanism by which non-Irish Collective Investment Schemes established and registered in a relevant foreign jurisdiction can apply to be registered in Ireland as an ICAV. The Bill borrows from the existing Irish Companies Acts the procedure to redomicile investment funds from certain key jurisdictions into Ireland.
Next Steps and ConclusionNext steps will involve the ICAV Bill passing through the legislative process before being enacted into Irish law. Although there is no prescribed timeframe, the Irish Government has indicated that as this piece of legislation is a government priority, it is hoped that it will be enacted before the end of 2014.
In addition, while the legislation once enacted will set out high level principles, the Irish Minister of Finance will issue regulations and the Central Bank will also set down specific ICAV requirements in the form of regulatory notices which will put meat on the bones of the ICAV Bill as well as allow a certain amount of flexibility in dealing with ICAVs.
The ICAV will offer promoters of Irish funds an additional option to the current suite of structures available in Ireland, and will enhance Ireland’s competitiveness as the domicile of choice for global asset managers.
You can access the ICAV Bill here.