Ireland prides itself on being a fund domicile that responds to the needs of managers. This position has been reinforced this year by the passing of the Irish Collective Asset-management Vehicle (ICAV) Bill 2014 (the "ICAV Bill") by the Irish Government. The ICAV Bill introduces a new corporate structure, the ICAV, specifically designed for investment funds to sit alongside the various structures currently available in Ireland.

Background

The ICAV Bill was drafted following a push by the Irish government to enhance the attractiveness of Ireland as a funds domicile. Keen to respond to the needs of the funds industry, the Irish Government committed to establishing a bespoke corporate vehicle to further facilitate the establishment of Irish investment funds.

The current corporate vehicle used to establish funds in Ireland, the public limited company ("plc") is currently the most popular fund structure in Ireland. The ICAV is to a large extent based on the plc structure, but with some key improvements aimed at reducing the administrative burden caused by reporting requirements and restrictions applicable to the plc structure. The ICAV also provides an extremely tax-efficient framework, aiming to attract more US investors to Irish domiciled funds.

Key Features

The ICAV will sit alongside the current structures available for Irish domiciled funds, with both UCITS and alternative investment funds permitted to be established as an ICAV. The ICAV will include some features enjoyed by the existing Irish fund structures, such as the flexibility for funds to be structured as open-ended, closed-ended or have limited liquidity, and the ability to establish sub-funds with segregated liability and different share classes within the one structure. These features provide flexibility for investors while continuing to afford them the economies of scale associated with a single structure.

Unlike the plc, the ICAV will not be required to be incorporated under the Irish Companies Acts. Instead, incorporation, authorisation and on-going supervision are all carried out by the Central Bank of Ireland. This will mean that the ICAV will not be subject to the various Irish or European requirements for companies, which are often more suitable for trading companies than for investment fund structures.

However, and similar to the plc, the ICAV will be required to have a registered office in Ireland. The ICAV must appoint a board of directors, consisting of at least two directors and a secretary. In terms of capital requirements, the paid-up share capital of the ICAV will be equal to its net asset value. There must be a minimum of two shareholders in the ICAV, and shareholders' liability will be limited to the amount unpaid on their shares.

Annual accounts must also be published for the ICAV. However, there is some additional flexibility in this regard as compared to the plc. It is permitted to publish separate accounts per sub-fund, while a plc is require to prepare a single set of accounts encompassing all sub-funds. As with the plc, the ICAV is free to employ a separate management company, if desired, but the structure is sufficiently flexible for an ICAV to act as a self-managed entity.

The ICAV will be constituted by an instrument of incorporation, similar to the memorandum and articles of association of a plc. However, the ICAV is more flexible than the plc structure in one respect. This is that, in the case of a proposed change to the instrument of incorporation, it will not necessarily be required to obtain investor approval, provided that the custodian or depositary certifies that there is no prejudice to investors. Similar flexibility is currently enjoyed by the unit trust structure in the case of changes to the trust deed, but any change to the memorandum and articles of association of a plc is subject to shareholder consent.

Existing plc structures will be able to convert to an ICAV by way of an application to the Central Bank. However, investor consent will be required, as the conversion to the ICAV structure will necessitate a change in the memorandum and articles of association of the plc. The conversion to an ICAV by a plc will not affect any contractual arrangement, obligation, liability or authority of the plc, so the conversion itself should not be overly burdensome for managers.

Foreign companies looking to re-locate to Ireland through existing re-domiciliation legislation will also be able to register in Ireland using the ICAV structure.

Irish funds have always enjoyed certain tax advantages. Currently, no Irish tax is payable at the fund level on income or gains regardless of the structure used. There is also no withholding tax on distributions or redemption payments where investors are not Irish resident or ordinarily resident in Ireland. This will continue for the ICAV.

However, the real advantage of the ICAV structure from a taxation perspective relates to matters of US taxation. The ICAV will be able to "check-the-box" to elect its tax classification for US tax purposes and can be treated as a partnership or "disregarded entity" for these purposes. While Irish unit trusts and investment limited partnerships can currently avail themselves of this US tax treatment, the plc structure does not have this flexibility. The ICAV will therefore be much more tax-efficient for US investors and, as a result, will further encourage US persons to invest in Irish domiciled funds.

Next Steps

Once the ICAV Bill becomes law, it is understood that the Central Bank will be in a position to receive applications within a matter of weeks. While there is no set timeframe for the ICAV Bill to be enacted, indications have been given by the Irish government that this will take place before the end of 2014.

Next Steps

Once the ICAV Bill becomes law, it is understood that the Central Bank will be in a position to receive applications within a matter of weeks. While there is no set timeframe for the ICAV Bill to be enacted, indications have been given by the Irish government that this will take place before the end of 2014.

Conclusions

The introduction of the ICAV once again demonstrates that Ireland is focused on meeting the needs of managers and keen to protect its reputation as a leading domicile for investment funds. Once introduced, the ICAV is expected to become the most popular fund vehicle in Ireland, if not in Europe. As the ICAV will co-exist with current Irish fund structures, managers will have further flexibility in selecting the structure most appropriate to their needs.

Contact Details

Catherine Fitzsimons

WALKERS

The Anchorage

17 - 19 Sir John Rogerson's Quay

Dublin 2,

Ireland

T: +353 1470 6664

Fax: +353 1 470 6601

catherine.fitzsimons@walkersglobal.com

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