The UK's proposed Partnership (Accounts) Regulations 2010 (2010 Regulations), are intended to remedy a loophole created by the Partnership (Accounts) Regulations 2008 (2008 Regulations), namely the ability to avoid the 2008 Regulations if one of the partners of a Limited Partnership (LP) was a natural person (or other non-corporate body).
Many private equity structures using Scottish and English LPs, will be caught by this new legislation thus becoming "Qualifying Partnerships" in the terms of the 2010 Regulations. By maintaining an industry-driven regulatory environment coupled with legislative innovation, Guernsey has the opportunity to strengthen its position in the alternative funds market and may now be considered the jurisdiction of choice for the establishment of LPs as a result of the repercussions the application of this new regulation will bring.
HOW ARE QUALIFYING PARTNERSHIPS AFFECTED?
A general theme of the private equity industry is confidentiality. This is particularly true with regards to the investor base. The 2010 Regulations fundamentally threaten these principles as outlined briefly below: The 2010 Regulations may require significant accounting disclosures effectively identifying all parties involved in the fund. Qualifying Partnerships are required to file their accounts publicly in the UK. This again damages the ability to keep investment information and valuations confidential. Details of deal structuring will also be made available.
In addition, accounts must be prepared in accordance with the UK Companies Act and thus in compliance with UK GAAP or IFRS rather than in accordance with the Limited Partnership agreement which is currently standard practice. This is not only time consuming but costly
GUERNSEY TO BENEFIT?
With Guernsey being the preferred choice of private equity fund managers in terms of fund administration the ability of Guernsey to offer an alternative to English and Scottish LPs is vital. Guernsey Limited Partnerships are not Qualifying Partnerships for UK purposes and many have already made the move from English and Scottish LPs to Guernsey LPs.
- The structure and participants of the structure will remain confidential.
- GAAP is not specifically required. Instead industry best practice standards can be applied.
As GAAP is not required, there will be no requirement to publicly file accounts.
It is yet to be seen as to whether the Guernsey LP will be challenged. The possibility of a Guernsey LLP arriving in the near future will only strengthen Guernsey's claim to have a complete offering in terms of legislation and administration for the alternative funds class.
Having already drawn the lion's share of private equity fund administration work to the island, it is clear that as a jurisdiction, Guernsey is doing everything right to support LPs. The Guernsey LP is a suitable and easily manageable alternative to the English and Scottish LP without the additional administration associated with it. It would appear then only logical to believe that Guernsey will again be the flexible jurisdiction it is renowned for and create further legislation to support LPs into the future.
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