The Irish parliament is making progress with the Bill which will, in due course, introduce the ICAV, a new corporate structure for the establishment of collective investment schemes in Ireland, and increase the range of fund structures available to promoters. 

The ICAV Bill was published in mid-December. Its preparation, with which we have been and are extensively involved, underlines the Irish Government's commitment to beefing up the funds industry and represents the fulfilment of one of the initiatives outlined in its “Strategy for the International Financial Services Industry in Ireland 2011-2016.”

What is an ICAV?

The ICAV will sit alongside the public limited company structure, which has been the most successful and popular of the existing Irish fund structures to date. The ICAV is expected to be incorporated with the Central Bank (although this has yet to be confirmed) and will provide a tailor-made fund vehicle to which ought to be available as a corporate structure to both Undertakings for Collective Investment in Transferable Securities (UCITS) and alternative investment funds (AIFS). 

Why is Ireland introducing it?

The ICAV will represent a modernisation of the corporate fund structure and is conceived specifically with the needs of investment funds in mind. The advantage of a bespoke funds vehicle is that an investment fund established as an ICAV will not suffer from endless amendments to certain pieces of European Union and domestic company legislation which are targeted at trading companies rather than investment funds.

CALLOUT: The ICAV will have its own legislative regime to distinguish it from ordinary companies 

The ICAV will be able to 'elect' its classification under the US 'check-the-box' taxation rules. The present-day Irish plc is not permitted to 'check-the-box' for US tax purposes, meaning that it is treated as a separate entity and subject to two levels of tax: one at the corporate level where the income is earned and the second at shareholder level when distributions are made. An 'eligible entity', i.e. an entity that can 'elect' its 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.

Features of the ICAV

The primary features of the ICAV are to be as follows.

• An ICAV will not have the status of an ordinary Irish company that has been established under the Irish Companies Acts. Instead, it will have its own legislative regime which will help to ensure that the ICAV is distinguished from ordinary companies and therefore will not be subject to those aspects of company law that would not be 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. It may be listed on a stock exchange, which itself will act as a front-line regulator. Investors are to own shares in the ICAV and the ICAV should be able to issue and redeem shares continually according to demand from investors. In this regard, there is to be no difference between the ICAV and other open-ended collective investment schemes.
• The ICAV will have a governing document which is likely to be known as an instrument of incorporation or IOI. Similar to the memorandum and articles of association of an investment company, this will be the constitutional document of the ICAV. The primary reason in differentiating between a memorandum and articles of association and an IOI is to emphasise the distinction between the ICAV and existing plcs as different types of corporate entity.
• In the case of changes to the IOI, it is envisaged that there will be no need for the board to obtain prior approval from investors as long as the depositary certifies that changes to the IOI do not prejudice the interests of investors (similar to the requirements relating to changes to the trust deed of a unit trust).
• Like a plc, an ICAV will have to have a board of directors to govern its affairs. Similar to other collective investment schemes, the ICAV may either be managed by an external management company or be a self-managed entity.
• Depositary requirements that resemble those that currently exist for an investment company will apply to an ICAV (although, of course, these will vary depending on whether the ICAV is a UCITS or an AIF).
• It is likely that the directors of an open-ended ICAV will be permitted to elect to dispense with the need to hold an annual general meeting by giving written notice to all of the ICAV's shareholders.
• Existing funds established as plcs will have the option to convert to ICAV status.

 Michael Jackson, Tara Doyle, Dualta Counihan, Liz Grace, Philip Lovegrove and Shay Lydon of Matheson Partners wrote this summary.