Further to our December eZine article on the new Irish Collective Asset-management Vehicle for the Irish Funds industry, which will be known as the ICAV, the Irish Minister for Finance has recently published the General Scheme of the Irish Collective Asset-management Vehicle Bill 2014 (the “General Scheme”).

The General Scheme is the pre-cursor to the actual draft bill for the ICAV. The Minister has indicated that he will press ahead with the drafting of the bill as a matter of priority and it is anticipated that the draft bill will be published in early 2014. 

Background

This new corporate structure, the ‘ICAV’, will sit alongside the existing corporate structure for collective investment schemes in Ireland, namely the public limited company (plc), which is the form a significant number of existing Irish fund structures have adopted to date. It is anticipated that the ICAV structure will be available to both UCITS and Alternative Investment Funds. 

The ICAV structure has been designed specifically for investment funds. As such, much of the Irish company law and accounting rules, which currently apply to existing Irish collective investment schemes structured as plcs, will not apply to the ICAV structure.  In addition, ICAVs will not be subject to further developments in European and Irish company law, which developments are more appropriate for trading companies rather than investment funds. This should result in lower administrative costs for an ICAV.

In addition, the ICAV will be able to elect for classification under the US “check – the – box” taxation rules as ‘flow throughs’ for US tax purposes.  In contrast to investment funds authorised as unit trusts and investment limited partnerships (which can be treated as ‘flow throughs’ for US tax purposes) plcs are currently viewed as corporations for US tax purposes and therefore are potentially subject to two levels of tax, one at the corporate level where the income is earned and a second at the shareholder level when distributions are made.  An eligible entity (i.e. an entity that can elect for 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. 

Some Key Features of the ICAV

The General Scheme sets out some of the key features of an ICAV, as follows:

• An ICAV will not have the status of an Irish company established under the Irish Companies Acts. Instead, it will have its own legislative regime to ensure that the ICAV is distinguished from ordinary companies and therefore not subject to those aspects of company law legislation which are not 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 and may be listed on a stock exchange.
• In much the same way as existing plcs, investors will own shares in the ICAV and the ICAV will be able to issue and redeem shares continually according to investor demand.
• The Central Bank will be the supervisory authority for the ICAV and it is contemplated that the Central Bank will adopt a similar approach, in respect of filings and review, as that which applies to fund vehicles currently authorised by the Central Bank.
• The constitutional document for an ICAV will likely be known as an “instrument of incorporation”, and take a similar form to the memorandum and articles of association of a plc.
• In the case of changes to the “instrument of incorporation”, it is envisaged that there will be no requirement to obtain prior investor approval where the custodian or depositary certifies that the proposed changes do not prejudice the interests of investors.
• It is proposed that the ICAV will have a board of directors and company secretary, similar to existing Irish plcs.
• As is the case for existing Irish collective investment schemes, the ICAV can either be managed by a separate management company, or be a self-managed entity.
• The General Scheme contemplates a mechanism for funds domiciled outside of Ireland to migrate into Ireland as ICAVs, which mirrors the existing provisions in place.
• Importantly, the General Scheme includes a procedure for existing Irish authorised collective investment schemes established as plcs to convert to ICAV status.

You can access the General Scheme at the following link: http://www.finance.gov.ie/sites/default/files/General%20Scheme%20of%20the%20ICAV%20Bill.pdf

For further information, please contact your usual William Fry Asset Management and Investment Funds contact, or Ross Little.