Progress is being made on draft legislation which will introduce the ICAV, a new corporate structure for the establishment of collective investment schemes in Ireland, increasing the range of fund structures available to promoters. It is hoped that an industry project relating to the ICAV, with which Matheson partners are extensively involved, will lead to the publication of a draft bill by the end of this year. The introduction of the ICAV underlines the Irish Government's commitment to the Irish funds industry and represents the fulfilment of one of the initiatives outlined in the Governments IFSC Strategy 2011-2016.
What is an ICAV?
The ICAV will sit alongside the public limited company ("plc") structure, which has been the most successful and popular of the existing Irish fund structures to date. The ICAV is expected to be incorporated with the Central Bank (although this has yet to be confirmed) and will provide a tailor-made fund vehicle to which will be available as a corporate structure to both UCITS and alternative investment funds ("AIFs").
Why is the ICAV being introduced?
The ICAV will represent a modernising of the corporate fund structure and is conceived specifically with the needs of investment funds in mind. The advantage of a bespoke funds vehicle is that an investment fund established as an ICAV will not be impacted by amendments to certain pieces of European and domestic company legislation which are targeted at trading companies rather than investment funds.
The ICAV will be able to elect its classification under the US check-the-box taxation rules. The Irish plc is not currently permitted to check-the-box for US tax purposes, meaning that it is treated as a separate entity and subject to two levels of tax: one at the corporate level where the income is earned and the second at the shareholder level when distributions are made. An 'eligible entity' ie, an entity that can elect its 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.
Features of the ICAV
The primary features of the ICAV are set out below.
- An ICAV will not have the status of an ordinary Irish company established under the Irish Companies Acts. Instead, it will have its own legislative regime, which will assist in ensuring that the ICAV is distinguished from ordinary companies and therefore will not be subject to those aspects of company law legislation that would not be relevant or appropriate to a collective investment scheme.
- An ICAV may be established as an umbrella structure with a number of sub-funds and share classes. It may be listed on a stock exchange. Investors will own shares in the ICAV and the ICAV will be able to issue and redeem shares continually according to investor demand. In this regard, there is no difference between the ICAV and other open-ended collective investment schemes.
- The Central Bank of Ireland (the "Central Bank") will be the supervisory authority for the ICAV and will adopt a similar approach in respect of filings and review to that which applies to fund vehicles currently authorised by the Central Bank, depending on whether the scheme is a UCITS or an AIF.
- The ICAV will have a governing document likely to be known as an instrument of incorporation ("IOI"). Similar to the memorandum and articles of association of an investment company, this will be the constitutional document of the ICAV. The primary reason in differentiating between memorandum and articles of association and IOI is to emphasise the distinction between of the ICAV and existing plcs as different types of corporate entity.
- In the case of changes to the IOI, it is envisaged that there will be no requirement to obtain prior investor approval where the depositary certifies that changes to the IOI do not prejudice the interests of investors (similar to the requirements relating to changes to the trust deed of a unit trust).
- Like a plc, an ICAV must have a board of directors to govern its affairs. Similar to other collective investment schemes, the ICAV may either be managed by an external management company or be a self-managed entity.
- Similar depositary requirements to those that currently exist for an investment company will apply to an ICAV (which will vary depending on whether the ICAV is a UCITS or AIF).
- It is likely that the directors of an open-ended ICAV will be permitted to elect to dispense with the holding of an annual general meeting by giving written notice to all of the ICAV's shareholders.
- Existing funds established as plcs will have the option to convert to ICAV status.
The proposals for the ICAV legislation are aimed at developing the funds industry in Ireland and promoting employment and business opportunities in the State. The ICAV will provide an additional option to promoters, complementing the existing options available in terms of fund structures. The introduction of the ICAV is a further example of Ireland's pro-active approach to meeting the evolving needs of fund promoters. The introduction of the ICAV will not result in any changes for existing plcs which will continue to co-exist with the ICAV. However, it is anticipated that the ICAV will become the vehicle of choice for AIFs in Europe.
We will continue to keep you updated as the ICAV legislation develops. Please get in touch with your usual Asset Management and Investment Funds Group contact or any of the contacts listed in this publication should you require further information in relation to ICAV.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.