On 29 July 2014, the Irish Collective Asset-management Vehicle (ICAV) Bill 2014 (the “ICAV Bill”) was published. The ICAV Bill will allow for the establishment of the new Irish corporate investment fund vehicle that is specifically tailored to the needs of the global funds industry. The ICAV Bill is currently being reviewed by the Irish government as part of the legislative process and it is expected that primary legislation will be enacted in the fourth quarter this year to allow these vehicles to be established.
The ICAV is a bespoke corporate structure which will avoid the need for compliance with certain Irish company law requirements. The ICAV is also expected to be able to elect to meet the U.S. “check the box” taxation rules which will allow U.S. taxable investors to avoid certain adverse tax consequences that would normally apply to passive foreign investment companies.
The ICAV Bill contains a mechanism for existing investment companies to convert to an ICAV by way of continuation. The conversion process is straightforward and many existing Irish funds are expected to avail of this process. The way in which an existing investment company will be able to convert to an ICAV is similar to two conversion processes already used for Irish umbrella funds moving from cross liability to segregated liability, and in the fund re-domiciliation process. The main difference with the ICAV conversion process is that the application for conversion is made solely to the Central Bank and not to the Irish Companies Registration Office.
This briefing sets out the steps to be followed for an investment company to apply to the Central Bank to convert to an ICAV.
Amendments to Memorandum & Articles of Association
The ICAV Bill requires that an investment company may convert to an ICAV where it is permitted to do so by its memorandum and articles of association (“M&A”). Where the M&A does not contain provisions permitting the conversion then the M&A must be amended in order for the conversion to proceed. This amendment will require the approval of the shareholders of the investment company.
Instrument of Incorporation
A new incorporation document for the ICAV will need to be prepared which is called the instrument of incorporation. The instrument of incorporation will replace the investment company’s M&A and certificate of incorporation when it converts to an ICAV. The instrument of incorporation will contain similar disclosures to the M&A in relation to the objects and share capital of the ICAV. Specifically, the instrument of incorporation must provide that:
- the sole object of the ICAV is the collective investment of its funds in property and giving members the benefit of the results of the management of its funds;
- the actual value of the paid-up share capital of the ICAV shall be at all times equal to the value of the assets of the ICAV, after deduction of its liabilities;
- the shares of the ICAV shall, at the request of any of its shareholders, be purchased by the ICAV directly or indirectly out of the ICAV assets unless and to the extent as may be approved by the Central Bank;
- the share capital of the ICAV shall be equal to the value of the issued share capital of the ICAV; and
- share capital is to be divided into a specified number of shares without assigning any nominal value to them.
It is expected that following the enactment of the ICAV Bill, the Central Bank will publish guidance which will permit an ICAV to amend its instrument of incorporation without shareholder approval in respect of non-material changes that do not prejudice the interests of shareholders. This will give the ICAV the same flexibility that unit trusts have when amending the constitutional document.
Application to the Central Bank
In order for an investment company to convert to an ICAV, a conversion application must be prepared and submitted to the Central Bank. The following documents will need to be filed with the Central Bank:
- a copy of the certificate of incorporation of the investment company;
- a certified copy of the M&A of the investment company;
- a certified copy of the instrument of incorporation in respect of the proposed ICAV;
- a list setting out details of the registered office, directors and secretary of the investment company;
- a statutory declaration of a director of the investment company made not more than 28 days before the date on which the application is made to the Central Bank to the effect that:
- no petition or other similar proceeding has been made to wind-up or liquidate the company;
- no receiver, liquidator, examiner or other similar person has been appointed in respect of the company;
- no scheme, order, compromise or other similar arrangement has been entered into by the company with its creditors;
- the conversion is permitted by and has been approved by the shareholders in accordance with the M&A of the investment company; and
- any consent to the proposed conversion required by any contract entered into or undertaking given by the company has been obtained or varied;
- a declaration of solvency from a director of the investment company;
- a schedule of charges or security interests created or granted by the investment company;
- where applicable, a description of any change to the proposed name of the investment company following its conversion to an ICAV (other than where the only change is to delete the words “public limited company” or “plc” from the company’s existing name); and
- a statutory declaration that the above requirements have been complied with. This declaration can be made by a director of the investment company or a solicitor on behalf of the investment company. The Central Bank may take this statutory declaration as sufficient evidence of compliance with the above requirements.
The Central Bank has indicated that the conversion application will be published shortly after the ICAV legislation has been adopted later this year.
Once the Central Bank has received a completed application for conversion, it shall:
- publish a notice of the proposed conversion in Iris Oifigiúil;
- issue a registration order in respect of the registration of the investment company as an ICAV; and
- enter in a register the details of charges or security interests of the ICAV.
Once the certificate of registration has been issued, the investment company shall be deemed to be an ICAV under ICAV legislation. The final step will be for the investment company to apply to be de-registered in the Irish Companies Registration Office with effect from the date of its registration as an ICAV.
We expect that the entire conversion process will take approximately 6 to 8 weeks. Once the investment company has been registered as an ICAV, it is also authorised to carry on its business.
Consequences of Conversion
The conversion of the investment company to an ICAV will not affect the authorisation of the investment company as a UCITS or an AIF. However the name of the investment company will change by the removal of “plc” or “public limited company” and its replacement with “ICAV” or “Irish Collective Asset-management Vehicle”. The prospectus, material contracts and KIIDs of the investment company will need to be updated to reflect that the investment company is an ICAV and the legislation under which it is incorporated. However, it will not be necessary to amend the existing service provider contracts which continue, and the ICAV will be able to use the past performance data relating to its existence as an investment company.
The conversion of an investment company to an ICAV will not operate to:
- be a crystallising event for taxation purposes;
- create a new legal entity or affect the identity or continuity of the existing entity;
- affect the continuity of the existing entity;
- affect any contract, resolution or any other act or thing done in relation to the existing entity during its lifetime;
- affect the rights, authorities, functions and liabilities or obligations of the existing entity or any other person; or
- render defective any legal proceedings by or against the existing entity.
As the ICAV conversion process is straightforward it is expected that many existing Irish funds will avail of this process. The ICAV Bill is currently being reviewed by the Irish government as part of the legislative process and it is expected that primary legislation will be enacted in the fourth quarter this year to allow existing investment companies to convert to ICAVs.Download PDF