In this update we consider the Investment Limited Partnership (Amendment) Bill 2020 (the “ILP Bill”), which has been most recently discussed in the Seanad at Committee Stage, where it was debated as initiated alongside the proposed amendments, in a stage that closed on 7 October 2020. In addition we will consider the amendments put forward by Seanad Éireann Committee (the “Committee”).
1. Investment Limited Partnerships: Background to the Bill
The Irish Investment Limited Partnership product (the "ILP") was originally established pursuant to the Investment Limited Partnerships Act 1994 (the "1994 Act"), allowing investors to hold a variety of assets through a common law limited partnership agreement structure. As a result of this structure ILPs can offer limited liability to investors and beneficial tax treatment of assets invested depending on the structure of the fund, authorised and regulated by the Central Bank of Ireland (the “CBI”). Per its draft text the purpose of the new ILP Bill is to update the 1994 Act, and align it with recent domestic and EU legislation, such as the Companies Act 2014 and the AIFMD.
Enhancing the ILP structure was a key deliverable of the government's finance strategy and the ILP Bill is generally viewed as being a central component in making Ireland a more attractive domicile for private equity funds. This is particularly the case as ILPs are expected to be the preferred vehicle for investment in “real assets” such as property, energy, infrastructure, private equity, and private debt once the ILP Bill is passed.
The ILP Bill makes a number of technical amendments to the Irish Collective Asset Management Vehicles Act 2015 (the “ICAV Act”) to enhance the efficiency of the structure and align it with the Companies Act 2014. The Committee has made some proposals to amend these changes, and these will also be discussed below.
2. Main Changes Proposed by the Bill Unopposed by the Committee
2.1 “White List” of Permitted Acts
If a Limited Partner (“LP”) takes part in the management of the ILP, they can lose the benefit of limited liability. The Bill as proposed would introduce a “white list” of permitted acts which will not result in the loss of limited liability. Section 7 of the Bill lists these activities such as serving on any board or advisory committee of the ILP, appointing representatives to such a board, or advising on, consenting to or refusing to consent to any proposal of the general partner on behalf of the ILP.
2.2 Amendments to the Limited Partnership Agreement (the “LPA”)
The requirements for amending the LPA are due to be changed by the ILP Bill. Where previously the LPA could only be amended by approval of all LPs, the ILP Bill would allow for amendment where a majority of the partners are in favour, provided the existing LPA allows for amendments. This will be permitted where the LPs are provided with notice of the proposed amendment and are notified of the changes in writing. Additionally alterations may be made where the depositary certifies that the changes do not prejudice the interests of the LPs, provided that the Bank has not stipulated that it is a change which must be made by way of partner approval.
2.4 Statutory Transfer of Assets and Liabilities
In addition to the above proposals with regard to the above variation of the LPA, proposals in the ILP Bill would see a statutory transfer of assets and liabilities on the admission or replacement of a general partner be introduced. This would result in all rights or property of the Investment Limited Partnership vesting in the incoming partner or existing general partners, or indeed all rights or property of the ILP vesting in the remaining partners on the withdrawal of a partner.
2.5 Beneficial Ownership Requirements
Earlier this year EU regulations were introduced to ensure a register of Beneficial Ownership was created and maintained by corporate entities in an effort to strengthen anti-money laundering practices. When introduced these regulations were applicable to ICAVs and Unit Trust Funds, and the passing of this Bill would render ILPs and Common Contractual Funds (“CCFs”) equally subject to these requirements. Under these rules the general partner of the ILP would be required to create and actively maintain a register of beneficial ownership of the ILP which is submitted to the CBI. Penalties in line with the Companies Act 2014 are set out in the Bill for non-compliance with these requirements, as well as the procedures for rectifying any errors. No amendment to this section has been proposed by the Committee of Seanad Éireann.
2.6 Sanctions which are Penal in Nature
The courts in Ireland and other common law jurisdictions have previously determined that provisions in an agreement which impose additional obligations on a party in the event of a breach or a default may be unenforceable if they are subsequently adjudicated to be penal in nature. Provisions have been proposed in the ILP Bill which would expressly state that any sanctions imposed on LPs due to failure to perform their obligations or breach of the partnership agreement would still be enforceable, even if found to be penal in nature.
3. Amendments Proposed by the Committee of Seanad Éireann
3.1 “Umbrella Funds”
The ILP Bill introduces the use of “umbrella” or sub-funds in ILPs, providing for the possibility of managing separate portfolios of assets under an ILP umbrella. When structured as an umbrella the assets within each sub-fund belong exclusively to the partners holding an interest in the sub-fund, and cannot be used to discharge the liabilities of another sub-fund as each sub-fund will hold segregated liability from other sub-funds under the umbrella. This provision is opposed in its entirety by members of the Committee.
3.2 Reporting Requirements
The ILP Bill introduces a number of new definitions to the 1994 Act, a majority of which are designed to ensure more recent legislation is referenced. However The Committee would introduce an additional reporting requirement from the Minister for Finance, whereby a report must be issued within 12 months of passing the ILP Bill showing the impact and use of its provisions. More specifically this report would be aimed at showing whether the provisions are compatible with the OECD Base Erosion and Profit Shifting guidelines, and their impact on the Revenue Commissioners.
3.3 References to “Majority of Limited Partners”
As noted above the ILP Bill permits certain acts to be done by a majority of LPs, and the ILP Bill provides guidance as to what is to be considered a “majority” if the LPA does not do so. The ILP Bill proposes to have a simple majority calculated by reference to the value of contributions of the LPs at the time the decision is to be made. The Committee has proposed an amendment to remove this calculation requirement, therefore rendering a “majority” a simple majority by number of LPs.
3.4 Positive Contributions of the ILP
The ILP Bill itself does not make such a suggestion, but an amendment has been proposed by the Committee to add to the powers of the Bank in applying conditions to the ILP. This amendment proposes that the Bank be capable of imposing conditions on the ILP concerning the degree to which the ILP will make a positive contribution to the civil, social, economic, or cultural life within the State. Additionally an amendment has been proposed in the same vein which provides the Bank with the power to impose conditions on the degree to which investment policies imposed on the ILP support domestic and international climate change efforts. The ILP Bill as proposed would not make any changes to the said powers.
3.5 Curtailing Limited Liability of Partners
The ILP Bill as initiated contains provisions as to how capital contributions by limited partners and liability of limited partners for partnership debts are to operate if passed. One such provision would be that an LP would not be liable for the debts or obligations of the ILP beyond the amount pf the partnership property contributed by that LP, in a measure similar to the limited liability benefits of a Limited Company under the Companies Act 2014. However two amendments to this limited liability have been proposed by the Committee which curtail this benefit. The first amendment curtails this to the extent that an LP would still be liable for debts and obligations in respect of the Revenue Commissioner and staff of the ILP. The second amendment would only curtail this to the extent that an LP is still liable for debts and obligations to the Revenue Commissioner only.
3.6 Amendments to the ICAV Act
As mentioned above the ILP Bill makes certain technical changes to the ICAV Act to bring it more in line with the Companies Act 2014, as well as to improve CBI registration of active ICAVs. One such requirement would be that where there is a change of name of the ICAV the bank must update their register, as they would normally have to with changes in Directors or Secretaries. However this particular amendment is opposed in its entirety by the Committee.
3.7 Beneficial Ownership requirements of CCFs
As mentioned in 2.5 above Beneficial Ownership requirements are proposed to apply to both ILPs and CCFs with the goal of improving anti-money laundering practices. While this is largely unopposed, particularly with regard to the ILPs, there is an amendment proposed by a member of the Committee to affect CCFs. A part of this beneficial ownership requirement would see the free availability of this register of beneficial owners for certain classes of person. However the amendment proposed would limit to the extent that where an individual's data has been shared with specified bodies, and that individual is the subject of an ongoing criminal investigation, the Registrar is not permitted to divulge which bodies it has been shared with.
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