Establishment of an ICAV

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Philippa Williamson
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Establishment of an ICAV General Introduction and Background The eagerly awaited legislation introducing the Irish Collective Asset-management Vehicle ( ICAV ) was published by the Department of

1 Establishment of an ICAV General Introduction and Background The eagerly awaited legislation introducing the Irish Collective Asset-management Vehicle ( ICAV ) was published by the Department of Finance on 29 July 2014, in the form of the Irish Collective Assetmanagement Vehicle Bill 2014 (the Bill ). While the Bill must still pass through several stages of the legislative process, the publication of the Bill is tangible evidence of Ireland s pro-active approach in meeting the evolving needs of fund promoters, and its competitiveness as a leading international fund domicile. It is anticipated that the Bill will be enacted in the near future, and that ICAVs will be available as an investment fund specific corporate vehicle shortly after its enactment. The ICAV is a new corporate vehicle designed for Irish investment funds, providing a tailor-made corporate solution for both UCITS and alternative investment funds ( AIFs ). Conceived specifically with the needs of investment funds in mind, the ICAV, as a bespoke corporate investment fund vehicle, will have the advantage that it will not be impacted by amendments to certain pieces of European and domestic company legislation that are targeted at trading companies rather than investment funds. For further information on the key features and benefits of the ICAV, please refer to our factsheet available at Establishment Process In anticipation of the enactment of the Bill, and based on its published terms, the following is a helpful summary of the key steps in establishing an ICAV. Initial Steps and Decisions An ICAV can be authorised as either an AIF or as a UCITS fund. The fund type chosen will impact on the ICAV s documentation and on the timeframe and requirements for its authorisation. Additionally, an ICAV may be established as an umbrella structure with a number of sub-funds benefitting from segregated liability, with multiple share classes in each of its sub-funds, as a fund of funds investing in shares or units of other investment funds or as a feeder fund (in accordance with the requirements applicable to AIFs and UCITS), and may be listed on a stock exchange. Similar to other existing vehicles, the ICAV may either be managed by an external management company or be a self-managed entity. An ICAV must, in either case, have its own board of directors. Much the same as for any other investment fund vehicle, therefore, the promoter of an investment fund to be established as an ICAV will have a number of initial decisions to make which are unrelated to its choice of fund vehicle. Once these initial decisions have been made, the process for the establishment of an ICAV will involve two stages, with the Central Bank of Ireland (the Central Bank ) acting as the sole registration and authorisation body for ICAVs.

2 Registration of an ICAV In order to be registered, an ICAV must submit a written application for registration to the Central Bank which contains the following information on the proposed ICAV: its instrument of incorporation (the IOI ), which is the equivalent of the memorandum and articles of association of a company; a statement containing details in relation to the first directors and secretary of the ICAV, as well as the situation of the head office and registered office of the ICAV; and any other information the Central Bank may specify. The Central Bank will deem it appropriate to make a registration order in respect of an ICAV provided that it is satisfied that the ICAV is, and will continue to be, in compliance with the ICAV legislation and any directions made by the Central Bank. Before a registration order can be made, legal counsel for the ICAV must also provide a certificate stating that the IOI is in compliance with the provisions of the ICAV legislation. The Instrument of Incorporation The IOI for an ICAV will have to comply with the following requirements: The IOI should set out as the sole object of the ICAV the investment of its funds in property and the giving to its members any benefit resulting from the management of the funds; Provisions dealing with the shares of the ICAV will also need to be set out in the IOI. As fund specific corporate vehicles, ICAVs will not be subject to capital maintenance rules in the same way as a normal company, and the IOI will have to provide that the actual value of the paid up share capital of the ICAV shall be at all times be equal to the value of the assets of the ICAV after deduction of its liabilities, and that shares will not have an nominal value assigned to them. The IOI should provide that the shares of the ICAV have to be purchased by the ICAV at the request of the shareholders, unless and to the extent that approval of the Central Bank is obtained, and subject to associated conditions imposed by the Central Bank. This is designed to facilitate the use of the ICAV for closed-ended funds. In the event that changes to the IOI are proposed, there is no provision in the Bill requiring that shareholder approval be sought in order to implement such changes. Moreover, it is expected that the Central Bank will not require prior shareholder approval where the ICAV s depositary certifies that the changes to the IOI do not prejudice the shareholders interests. However, it is likely that proposed changes to an IOI will be subject to pre-approval by the Central Bank. In the case of AIFs, the usual 24 hour approval process for qualifying investor AIFs, which is based on the certification by the fund and its lawyers, will apply. 2

3 Directors A minimum of two directors will be required, neither of whom can be a body corporate. The requirements concerning directors under the Bill are, and their obligations as directors of an ICAV will be, essentially the same as those which currently apply under Irish company law. The proposed directors will be subject to the usual requirements concerning levels of experience and expertise, and will also have to meet the requisite Central Bank fitness and probity requirements. As a matter of practice, the IFIA corporate governance code will also apply to ICAV directors. Authorisation of an ICAV An ICAV which has been registered by the Central Bank will not be permitted to carry on business unless it has also been authorised by the Central Bank (this will not prevent the ICAV undertaking any necessary pre-authorisations steps). The precise authorisation process will depend on whether the ICAV is to be authorised as an AIF or a UCITS. For UCITS ICAVs, the authorisation process will be the same as for UCITS structured as Part XIII investment companies, unit trusts etc, and the ICAV will be authorised pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (the UCITS Regulations ). An application by an ICAV for authorisation as an UCITS under the UCITS Regulations must be made in writing to the Central Bank and must contain all information required by the Central Bank for the purpose of determining the application. The process will not differ from the authorisation process for UCITS authorised as investment companies, unit trusts etc, and the fund documents will be subject to prior approval by the Central Bank. Typically, a UCITS authorisation takes 4 to 6 weeks. For ICAVs seeking authorisation as AIFs, the Bill sets out the authorisation process in detail. An application by an ICAV for authorisation as an AIF must be made in writing to the Central Bank and contain the following information: a statement of the general objectives of the ICAV; if the ICAV is not also to be authorised as an alternative investment fund manager ( AIFM ) under the European Union (Alternative Investment Fund Managers) Regulations 2013, the full name and address of the proposed management company; the full name and address of the proposed depositary; and any other information the Central Bank may specify. The Central Bank will deem it appropriate to grant an authorisation, as an AIF, in respect of an ICAV provided that the following conditions are met: the Central Bank is satisfied that the ICAV is, and will continue to be, in compliance with the ICAV legislation and any conditions imposed by the Central Bank under that legislation or any financial services legislation; the Central Bank has approved the proposed depositary and the management company (if any); 3

4 the directors of the ICAV are fit and proper persons with appropriate levels of experience; and the name of the ICAV is not undesirable or misleading. The name of the ICAV must end with either Irish Collective Asset-management Vehicle or ICAV. Once the Central Bank is satisfied with an application, it will provide the applicant with written notice of the authorisation order, which notice will specify the date on which it is to come into effect. The Central Bank may impose such conditions as it deems appropriate in relation to the granting of the authorisation of an ICAV AIF and the orderly and proper regulation of the business of the ICAV s, depositaries or management companies. Such conditions may be related to particular classes of, or individual, ICAVs, depositaries or management companies. It is expected that the current 24 hour approval process for qualifying investor AIFs will apply to ICAV AIFs. Approval of Depositary The Bill requires that an ICAV appoint a depositary. An application for approval of the nominated depositary must be made in writing to the Central Bank and be accompanied by such information as the Central Bank may specify for the purpose of determining the application. The Central Bank may also impose such conditions as it deems appropriate in relation to the granting of depositary approval. Approval of Management Company An application for approval of the ICAVs nominated management company must be made in writing to the Central Bank and be accompanied by such information as the Central Bank may specify for the purpose of determining the application. As with the depositary approval, the Central Bank may impose such conditions as it deems appropriate in relation to the granting of approval. The Central Bank will approve a management company: which is an AIFM authorised by the Central Bank or another EU member state s regulatory authority; or is an Irish company which the Central Bank is satisfied has the necessary competency, probity and financial resources to conduct its affairs effectively and in compliance with Central Bank requirements. Comment The introduction of the ICAV will provide an additional option for promoters, complementing the existing range of available Irish fund vehicles. This will not result in any changes for established plcs which will continue to co-exist with the ICAV. However, it is anticipated that the ICAV will become the vehicle of choice for AIFs and UCITS in Europe. The uncomplicated registration and authorisation process is expected to be of interest to managers wishing to avail of the benefits of the ICAV. For further information on the key features and benefits of the ICAV, please refer to our factsheet available at 4

5 We will continue to keep you updated on ICAV developments. If you require detailed advice relating to the ICAV, please get in touch with your usual Asset Management and Investment Funds Group contact who would be delighted to assist you. Full details of the Asset Management and Investment Funds Group, together with further updates, articles and briefing notes written by members of the Asset Management and Investment Funds team can be accessed at The material is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute, legal or any other advice on any particular matter. The information in this document is provided subject to the Legal Terms and Liability Disclaimer contained on the Matheson website. Copyright Matheson 5

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