On 20 December 2013, Ireland's Minister for Finance published the General Scheme of the Irish Collective Asset-management Vehicle Bill 2014 which will allow for the establishment of a new Irish corporate investment fund structure that will be tailored to the needs of the global funds industry: the Irish Collective Asset-management Vehicle or "ICAV".
We have set out below some commonly asked questions about the ICAV. This Q&A has been prepared on the basis of the draft legislation and is therefore subject to change as the legislation is finalised.
1. What is an ICAV?
The ICAV is a 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, the unit trust, the common contractual fund and the investment limited partnership). The ICAV is most similar to an investment company but with certain advantages that mean it will be more tax efficient and also more tailored to the needs of the global funds industry. We expect that the ICAV will be the vehicle of choice in Ireland for fund promoters.
2. What are the key advantages of an ICAV?
The first 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 and 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 current ICAV rules include proposals that will allow an ICAV:
- to amend its constitutional document without shareholder approval in respect of non-material changes that do not prejudice the interests of shareholders;
- to prepare separate financial statements for sub-funds;
- to allow directors to dispense with the holding of an AGM by giving written notice to all shareholders; and
- to utilise a more simplified process for mergers with existing funds.
3. How does an ICAV compare with other fund structures in Ireland?
The ICAV is most similar to the 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 also be equally as flexible as the investment company and may be formed as an open-ended, closed-ended or limited liquidity vehicle.
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.
4. Can an ICAV be authorised as a UCITS / AIF?
Yes. 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 self-managed entity.
5. Can an ICAV be established as an umbrella structure?
Yes. The ICAV will be capable of being authorised by the Central Bank as an umbrella structure with segregated liability between its sub-funds.
6. How can an existing Irish fund established as an investment company convert to an ICAV?
The conversion process is straightforward and we would expect many existing Irish funds will avail of this.
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 first step in the conversion process is to submit an application to the Central Bank containing the required documentation and statutory declarations. Next the Central Bank will publish a notice of the proposed conversion in the Companies Registration Office Gazette, and once the Central Bank has processed the application it shall issue a certificate of registration.
Once the certificate of registration has been issued, then 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.
7. How long will it take to convert an investment company to an ICAV?
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, and we expect that a large number of Irish funds will avail of this conversion procedure.
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 / any legal proceedings against the investment company.
Please note that the conversion procedure is still under discussion as part of the legislative drafting process. However we would expect that the current form of the conversion procedure will remain essentially unchanged so as to be in line with the re-domiciliation regime currently in place in Ireland.
8. Can a non-Irish company convert to an ICAV?
In relation to companies outside of Ireland looking to migrate and become an ICAV, the General Scheme includes a similar re-domiciliation process that is currently in place in the Irish Companies Acts.
9. When will the ICAV be available in Ireland?
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 second 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.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.