Ireland: CLO Update

Last Updated: 16 November 2016
Article by Cormac Kissane, Glenn Butt, Aiden Small, Phil Cody, Fintan Clancy, Caroline Devlin, Conor Hurley, Ailish Finnerty, Aisling Burke, Helen Berrill and Robert Cain
Most Read Contributor in Ireland, October 2018

INTRODUCTION

This briefing outlines a number of the recent developments in the CLO space and considers how the Irish regulatory regime might mitigate some of the impact of Brexit for UK collateral managers. If you would like any further detail, please do not hesitate to get in touch with your usual Arthur Cox contact.

PROPOSED CHANGES TO SECTION 110 REGIME

On 6 September 2016, the Department of Finance published draft legislation which it is proposed will amend the Section 110 regime in Ireland. Amended legislation was published in the Finance Bill on 20 October 2016. Further refinements are to be proposed at Committee Stage. The draft legislation is narrowly focussed and designed to apply to those Section 110 companies which derive all or part of their profits directly and indirectly from Irish land. There are specific exemptions for CLO transactions, CMBS/RMBS and loan origination so most public transactions and all transactions with non-Irish assets are unaffected. This is consistent with the Irish government's public statements of support for the financial services industry in general and securitisation in particular. We expect the legislation to become law in December. A link to the draft legislation is here and a link to the amendments proposed by the Government is here.

VAT ON COLLATERAL MANAGEMENT FEES

Irish VAT law contains a specific exemption for the management of specified forms of "special investment funds", including Section 110 companies. Defining which entities qualify as "special investment funds" for VAT purposes is a matter for each member state, subject to the parameters given by the European Court of Justice. We consider that the vast majority of Section 110 transactions would fall within those parameters and, as a result, Ireland has appropriately and correctly exercised its discretion in this area by including Section 110 companies in the list of "special investment funds". Accordingly, the Fiscale eenheid case should not apply to change this position as a matter of Irish law. This means that the servicing and management of an Irish Section 110 CLO vehicle should remain exempt from VAT.

IMPACT OF BREXIT - MIFID SAFE HARBOUR AND COLLATERAL MANAGER AUTHORISATION

On 23 June 2016, the UK voted to leave the European Union. While the exact timing and form of the exit is still unknown, it appears that the UK will leave the European Union in early 2019 (assuming the UK government makes its Article 50 notification by the end of March 2017, which PM Theresa May indicated it would at the Conservative Party Conference) and there appears to be a strong possibility that UK authorised collateral managers will no longer enjoy the benefits of the MiFID passport in order to provide their services to CLOs in European Union countries. Accordingly, collateral managers are keen to understand how best they can insulate their activities and transactions from the resulting uncertainty.

  1. MiFID Safe Harbour

One key consideration for collateral managers will be whether they can continue to manage CLO issuers if they no longer have the requisite passport under MiFID. Ireland has implemented MiFID in a manner which prohibits any person from acting as, or claiming to be, an investment firm in Ireland without due authorisation (i.e. the holder of a MiFID authorisation from the Central Bank of Ireland or a passported MiFID authorisation from another EU member state regulator). However, the Irish MiFID implementing regulations also incorporate a "safe harbour" which provide that an investment firm will not be regarded as operating in Ireland where:

  • its head or registered office is in a non-EU country;
  • it has not established a branch in Ireland; and
  • it is not providing investment services to Irish individuals.

If, as a result of Brexit, UK-based collateral managers lose their MiFID authorisations, they would nonetheless be permitted (under the current legislative regime) to continue to provide collateral management services to Irish CLO issuers without the need for a specific authorisation in Ireland. It remains to be seen whether the exemption will survive the implementation of the MiFID II third-country regime in 2018 – the Department of Finance has just finished a public consultation on the issue.

  1. Becoming authorised as a Collateral Manager in Ireland

One option for UK collateral managers to mitigate the impact of Brexit is to establish a MiFID authorised firm in Ireland. The process for obtaining a licence from the Central Bank of Ireland takes between 6-12 months (including preparation time, which tends to be the most significant variable in the process) and involves submission of a detailed application form and supporting documentation. The Central Bank requires applicants to have a pre-application meeting with it following submission of a "key facts document" summarising the applicant's business plan. This meeting is a useful step in the process and allows both the Central Bank and the applicant to raises and discuss issues of concern in advance of a formal application being made. There is no filing fee for the application, so the main cost is professional advisor fees. The Central Bank is particularly focused on the concept of "mind and management" and requires a firm's senior management, risk functions and decision-making to be in Ireland, albeit outsourcing is permitted (and common place).

Some background information, including a useful guidance note is available at this link: CBI MiFID Guidance

Market Abuse Regulation

The recently enacted Market Abuse Regulation will include an additional burden on SPVs with debt listed on the Main Securities Market or Global Exchange Market (GEM) of the Irish Stock Exchange. In particular, this is an issue for CLO vehicles which were listed on the GEM (or other exchange regulated market) at the date of enactment as they were not subject to the previous market abuse law regime. Directors and corporate services providers should ensure that they have adequate procedures in place to ensure compliance, in particular that they maintain insider lists, notify the relevant PDMRs (persons discharging managerial responsibility) and disclose inside information as soon as possible. In addition, where SPVs are delaying the disclosure of inside information in reliance on the "legitimate interests exemption" then they should also be mindful of minuting their decisions and the requirement to notify the Central Bank of the delay when the information is finally announced.

For further information on MAR please see our recent client briefings: New Market Abuse Regime - Impact on issuers of MSM-listed debt securities and Issuers of debt securities on GEM to be subject to new market abuse regime.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions