SANNE’s take on Ireland’s ILP Act

This article is sponsored by SANNE

Ireland’s finance minister Paschal Donohoe recently published the Investment Limited Partnerships (Amendment) Bill 2019. The bill includes changes to the existing legislation that will increase Ireland’s attractiveness as a jurisdiction for closed-ended strategies such as real estate, private equity, venture capital and infrastructure. These highly anticipated changes will close the gap between Ireland and other leading European jurisdictions where funds are domiciled. The act provides for the establishment and operation of a regulated ILP structure.

The ILP can be used in conjunction with the Alternative Investment Fund Managers Directive, which allows managers registered under AIFMD to market their funds across the EU and the European Economic Area using the European funds marketing passport licence/mechanism. An ILP is a limited partnership fund structure. It is constituted pursuant to a limited partnership agreement, whereby one or more general partners enter into an agreement with any number of limited partners. An ILP must have an Irish-domiciled GP, who will conduct the day-to-day business of the partnership.

The assets and liabilities of the partnership are owned proportionately by the LPs, with their liability being limited to the extent of their capital account. The GP is liable for any debt, liability or obligation greater than the value of the partnership. As investment limited partnerships constitute a collective investment undertaking, there is no tax exposure at a fund level, and the ILP remains tax transparent, making this an attractive structure for investors wanting to maintain their current tax status. An ILP must appoint a licensed AIFM, which may be Irish- or EU-domiciled. In addition, the ILP must appoint an Irish-domiciled administrator and depository to perform the respective functions required under AIFMD.

Motives behind the amendments
The proposed amendments are set to reflect the significant changes in the global closed-ended environment, in terms of modernisation of the ILP and in terms of the relevant EU legislation. The Irish government stated, in Ireland for Finance: Strategy for the Development of Ireland’s International Financial Services Sector to 2025, that the modernisation of the existing ILP legislation was a key strategic priority to enhancing the country’s position as a leading global fund domicile.

It is expected that the changes will greatly enhance Ireland’s attractiveness as one of the leading international fund domiciles for both investment managers and investors. The ILP structure can cater for all major investment strategies and is a suitable vehicle for alternative assets, credit, lending vehicles, managed accounts, hybrid funds and hedge funds.

Coupled with the potential removal of the national private placement regime, this will become an intriguing option for non-EU managers seeking access to capital in Europe. The reform proposed by the Irish government is part of its action plan to promote Ireland as a centre for international finance and support the continuous growth of the Irish funds industry. The industry anticipates that the bill, once it has been adopted, will provide certain other changes that will strengthen the operation of an ILP. These changes may include the ability to migrate a partnership into and out of Ireland on a statutory basis.

KEY HIGHLIGHTS OF THE BILL

Umbrella funds: GPs will have the ability to register and operate an ILP as an umbrella fund with segregated liability between sub-funds.
‘Safe harbour’ rules: The introduction of ‘safe harbour’ rules allows LPs to participate in advisory committees, vote on changes to the LPA and conduct certain activities without losing their limited liability status.
Amendments to the LPA: Amendments may be made to the LPA with a simple majority, rather than the unanimous approval, of the LPs. The bill’s provisions would allow changes to be made to the LPA if the depositary certified that the proposed amendments did not prejudice LPs’ interests and if certain other requirements were fulfilled.
Dual foreign name: The ILP would be able to register a ‘dual foreign name’ for non-English speaking jurisdictions and receive official recognition thereof. AIFMD alignment: Certain provisions, clauses and definitions have been amended to enable the new legislation to more fully conform with the directive.
Liability provisions: The liability provisions (including those that apply to service providers) will now be in keeping with the standards governing other Irish regulated investment funds, as well as AIFMD standards, thereby aligning the ILP legislation with recent statutory updates.
Admission or removal of GPs: The creation of a statutory vesting event whereby all assets, liabilities and property, regardless of the nature of the ILP, would be transferred from the exiting GP to the incoming GP or the remaining GPs.
Withdrawal changes: Modifying the provisions relating to withdrawals or redemptions to reflect other forms of collective investment schemes.