Publication of the ICAV Bill, July 2014


Executive Summary
On 29 July 2014, the Minister of State at the Department of Finance, Simon Harris, TD, published the Irish Collective Asset-management Vehicle (ICAV) Bill 2014 (the “ICAV Bill”) which 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. It is expected that the ICAV Bill will be reviewed by the Irish government as part of the legislative process and that primary legislation will be enacted towards the end of the third quarter this year.

Arthur Cox was a contributing member of the legislative group responsible for the preparation of the ICAV Bill. If you have any queries on this briefing, or require any further details, please do not hesitate to contact a member of our team.

We set out below the main features of the ICAV.

The ICAV is the new Irish corporate fund vehicle that will exist as the fifth type of legal structure alongside the current fund structures that are available in Ireland (the investment company, unit trust, common contractual fund and investment limited partnership).

The primary advantage of the ICAV is that the ICAV will be able to elect in its classification under the U.S. “check the box” taxation rules to be treated as a transparent entity for U.S. federal income tax purposes. This will allow U.S. taxable investors to avoid certain adverse tax consequences that would normally apply to “passive foreign investment companies”.

The second advantage is that the ICAV structure has been specifically designed to be distinguishable from a typical trading company. Most Irish funds are authorised as investment companies and, as such, are required to comply with many of the rules applicable to public companies which are not relevant or appropriate in the funds context. However, the ICAV is a bespoke corporate structure that will avoid the need for compliance with certain Irish company law requirements. This will result in reduced administrative obligations and associated costs.

For example, the ICAV Bill allows an ICAV:
» to prepare separate financial statements for sub-funds;
» to issue debenture stock, bonds and any other securities;
» to allow directors to dispense with the holding of an AGM by giving written notice to all shareholders;
» to allow existing investment companies to convert to an ICAV; and
» to utilise a more simplified process for mergers with existing funds.

It is expected that following the enactment of the ICAV Bill, the Central Bank will publish guidance on the ICAV which will permit an ICAV to amend its constitutional document without shareholder approval in respect of non-material changes that do not prejudice the interests of shareholders.

The ICAV is most similar to an investment company. Like an investment company, an ICAV will be a corporate entity that will be governed by a board of directors and owned by shareholders. The ICAV will be equally as flexible as the investment company in that it may be formed as an open-ended, closed-ended or limited liquidity fund.

However, unlike an investment company, the ICAV will be subject to its own legislative regime distinct from the Irish Companies Acts, and the incorporation, authorisation and supervision of the ICAV will be carried out by the Central Bank.

The ICAV will be capable of being authorised by the Central Bank as either a UCITS fund under the UCITS Regulations or as an AIF under the AIF Rulebook and related legislation. The ICAV can also be established as an externally-managed or a self-managed entity.

Conversion to an ICAV
The ICAV Bill contains a mechanism for existing investment companies to convert to an ICAV. The conversion process is straightforward and many existing Irish funds are expected to avail of this conversion mechanism. The way in which an existing investment company can convert to an ICAV is similar to the conversion process that was provided for in 2005 in relation to the move from cross liability to segregated liability for umbrella funds. The conversion process is also very similar to the fund re-domiciliation process that is currently provided for in the Irish Companies Acts, with the main difference being that the application is made solely to the Central Bank and not to the Irish Companies Registration Office.

The conversion is done by submitting an application to the Central Bank containing the required fund documentation and statutory declarations. The Central Bank will then publish a notice of the proposed conversion in the Companies Registration Office Gazette and once the Central Bank has processed the application it will issue a certificate of registration.

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.

We expect that the entire conversion process will take approximately 6 to 8 weeks based on the current re-domiciliation regime that is in place under the Irish Companies Acts.

The conversion of an investment company to an ICAV will not be a crystallising event for taxation purposes, nor will the conversion create a new legal entity, affect the continuity of the existing entity, affect any contract or action during the investment company’s lifetime or affect the rights, obligations or any legal proceedings against the investment company.

Migration of Non-Irish Companies
The ICAV Bill includes a mechanism for non-Irish investment companies to migrate into Ireland and become an ICAV as part of a single process. This process will be similar to the current re-domiciliation regime that is currently in place in the Irish Companies Acts.

Further Developments
As part of the legislative process, the Department of Finance has indicated that it will continue to work with industry to review and enhance the text of the ICAV Bill to ensure that the legislation is as robust as possible when it is enacted in the third quarter this year. However it is not expected that there will be any significant changes to what is currently included in the ICAV Bill. The areas which will be reviewed are:
» merger, migration and conversion of ICAVs;
» registration of charges and debentures;
» restriction and disqualification of directors;
» enforcement powers of the Office of the Director of Corporate Enforcement (ODCE) and the Central Bank;
» inclusion of certain amendments of financial services legislation;
» rules for financial statements (considering the interpretation of the Audit Directive);
» winding up and receivership of ICAVs; and
» strike off and restoration to the register of ICAVs.

It is expected that the primary legislation allowing for the creation of the ICAV will be enacted by the Irish Government towards the end of the third quarter this year. Once the primary ICAV legislation has been enacted, the final step will be for the Central Bank to begin accepting and processing applications for the authorisation of ICAVs.

A copy of the ICAV Bill 2014 is available here.

Arthur Cox was a contributing member of the legislative group responsible for the preparation of the ICAV Bill. If you have any queries on this briefing, or require any further details on any aspect of the ICAV, please do not hesitate to contact a member of our team.

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