Background

The Irish investment limited partnership product (the “ILP”) was originally established pursuant to the Investment Limited Partnerships Act 1994 (the “1994 Act”). It was envisaged that the ILP would be used as an investment vehicle for private equity, private debt, real estate and infrastructure investments. However, because the 1994 Act was not updated to keep pace with regulatory and market developments, the ILP has not proven to be an attractive fund structure when compared with other limited partnership vehicles, such as the Luxembourg RAIF. 

Proposed changes

To remedy the problems with the existing ILP regime, a number of significant enhancements to the 1994 Act have been proposed in the Investment Limited Partnerships (Amendment) Bill 2019 (the “Bill”) which was published on 20 June 2019. These enhancements aim to put the ILP on an equal footing with the regulated limited partnership vehicles that may be established in other jurisdictions. 

The Bill proposes to:

• Permit an ILP to be established as an umbrella fund, i.e. an ILP which is divided into one or more sub-funds together with a statutory ring-fencing regime similar to that in corporate fund structures such as the ICAV.
• Expand the range of white-listed activities for limited partners so as to align with other regulated limited partnership domiciles. In addition to the existing white-list, a limited partner will not be regarded as taking part in the conduct of the business of an ILP solely by doing any of the following:
  • voting as a limited partner on a decision to approve an alteration in the partnership agreement;
  • appointing, electing or otherwise participating in the choice of a representative or any other person to serve on any board or committee of the ILP; or
  • acting as a member of any such board or committee either directly or by or through any representative or other person, including giving advice in respect of, or consenting or refusing to consent to, any action proposed by the general partner on behalf of the ILP and exercising any powers or authorities or performing any obligations as a member of any such board or committee in the manner contemplated by the partnership agreement.
• Streamline the process for alteration of the limited partnership agreement which currently requires all partners to agree to a change. The Bill permits a partnership agreement to be altered with the majority approval of the limited partners or where the depositary of the ILP has certified in writing that the alteration does not prejudice the interests of the limited partners, subject to the following conditions:
  • the alteration is not one which the Central Bank of Ireland has stated may only be made by means of an instrument in writing signed by or on behalf of every partner to the partnership agreement; and
  • the partnership agreement confers a power on the depositary of the ILP to so certify that the alteration does not prejudice the interests of the limited partners.
• Provide that if the partnership agreement of an ILP contains remedies for, or consequences of, a failure by a limited partner to comply with his or her obligations or a breach by a limited partner of the agreement then those remedies or consequences will not be unenforceable or rendered inapplicable solely on the basis that they are penal in nature. A non-exhaustive list of such remedies or consequences is set out, which includes a sale or forfeiture of the defaulting partner’s partnership interest.
• Allow a partnership agreement to provide for circumstances in which a limited partner may receive out of the capital of the ILP a payment representing the return of any part of his or her contribution to the ILP.

Timeline

As is the case with any draft legislation passing through the Oireachtas (the Irish parliament), it is possible that changes will be made to the Bill during the committee stage of the legislative process. This committee stage is expected to take place during Autumn 2019 and it is hoped that the Bill will be enacted into Irish law before the end of this year. 

We will be monitoring the progress of the Bill as it moves through the legislative process and will provide further updates as they arise.

Contributed by: Niall Crowley

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