Ireland's Investment Partnership Bill Obtains Parliamentary Approval

In a highly positive and exciting development for the asset management industry, on 16 December 2020, the Bill to amend the Investment Limited Partnerships Act of 1994, passed all stages of the parliamentary process and has been into Law by the President of Ireland.
 

This enhancement of the law governing investment limited partnerships (“ILPs”) is expected to make the ILP the vehicle of choice for private funds, namely implementing European private equity, real estate, private debt, infrastructure and other real asset investment strategies. The amendments bring the ILP in line with other types of Irish investment fund vehicles and make use of “best in class” features for this type of vehicle.

Speaking about the development, James McEvoy, Country Executive Ireland at Alter Domus, said: “Private capital will be a hugely important source of funding for SMEs as we start to look towards recovery of our economies both locally and internationally.  The new Investment Limited Partnership legislation enables Ireland to support this funding and in doing so create significant high-quality employment opportunities.”

Key Features of the Bill

Formation and Regulation of ILPs

• Formation of ILPs is subject to Central Bank of Ireland (“CBI”) approval through CBI’s issuance of a Certificate of Authorisation
• Regulated by CBI in accordance with its AIF Rulebook
• May be classed as a Qualifying Investor Alternative Investment Fund (“QIAIF”) and avail of a fast-track procedure under which the constitutional documents, main offering documents, and material contracts are filed the day before approval is required
• QIAIFs may be open-ended, limited liquidity or closed-ended in terms of their liquidity profile
• In November 2020, the CBI confirmed that the GP of an Irish ILP will not need a separate regulatory authorisation or have regulatory minimum capital requirements
• Directors of the GP will be required to comply with the CBI’s fitness and probity regime

Ability to Establish Umbrella Type ILPs

• Umbrella type ILPs allow for multiple segregated liability compartments or sub-funds that provide significant structuring and strategy flexibility and accommodate different investor types within a single structure while reserving segregation of liability between sub-funds
• Use of an umbrella structure in an ILP will provide managers with considerable operational efficiencies and allows for economies of scale
   

Limited Liability of Limited Partners

• Liability of limited partners is limited to the amount they contribute or agree to contribute unless they perform certain activities related to the management and operation of the ILP
   

Limited Partners Performing Certain Functions

• The Bill contains a non-exhaustive list of activities an LP can perform in relation to the ILP which will not be considered participating in the management of the ILP and therefore not compromise their limited liability status
• Such activities are in line with accepted industry standards, i.e. service on any board or committee of the ILP; investigating, reviewing, or being advised as to the accounts or business affairs of the ILP or exercising any right conferred by the Bill; or approving changes to the limited partnership agreement (“LPA”)
   

Amendments to the LPA

• Amendments are now permitted by a majority of GPs and majority of LPs rather than all
• Asset managers have flexibility in determining the appropriate methodology to use in the LPA in the context of what constitutes a ‘majority’
• Certain amendments may proceed without LP approval where the depositary of the ILP certifies that the changes to the LPA do not prejudice the interests of LPs
   

Partner Defaults and Failure to Perform

• The range of options available to the GP of an ILP in the event of a default by an LP in respect of their obligations will be set out in the LPA
• The Bill specifically allows for the following consequences for an LP who fails to perform the obligations application to them under the LPA:

(a) Reducing, eliminating or forfeiting of partnership interests;

(b) Subordinating the partnership interest in the ILP of the defaulting partner to the interests of non-defaulting partners;

(c) Effecting a sale or forfeiture of the defaulting partner’s partnership interest.

• Provisions in the LPA relating to the consequences for defaulting investors will not be unenforceable solely on the basis that they may be penal in nature
   

Return of Contributions

• LPs are permitted to receive a payment representing the return of any part of their contribution out of the capital of the ILP, subject to the requirements of the LPA
• To ensure such payments are capable of being recalled if necessary, the LPA will have provisions addressing the issue of repayment of distributions by LPs in specific circumstances
   

Migration of Limited Partnerships from Other Jurisdictions

• It is possible for limited partnerships established in other jurisdictions to migrate to Ireland. The application for migration by a migrating partnership is made to the Central Bank and follows much of the standard process for establishment and authorisation of an ILP.
   

Beneficial Ownership Requirements

• The Bill requires the GP of an ILP to establish and maintain a register of beneficial ownership and to submit that information to CBI for inclusion on their central register of beneficial ownership of certain financial vehicles
• A “beneficial owner” of ILP is any individual who:

(a) ultimately is entitled to or controls, whether the entitlement or control is direct or indirect, more than a 25% share of the capital or profits of the partnership or more than 25% of the voting rights in the partnership, or

(b) otherwise controls the partnership
 

Related - Central Bank Consultation on Amendments to the AIF Rulebook

In early December 2020, the CBI issued a Consultation Paper on regulatory guidance which, subject to stakeholder feedback, proposes to issue relating to the scope of permissible features for share classes of closed-ended QIAIFs which pursue private equity type strategies or invest in other illiquid assets (“CE QIAIF”).
The Consultation addresses the areas of:

1. The issue of interests at a price other than NAV;
2. Excuse and exclude provisions;
3. Stage investing; and
4. Management participation in specific share classes (i.e. carried interest / waterfall mechanisms)

The closing date for submissions was 22 December 2020 and the outcome will be of particular relevance to closed ended ILPs and ICAVs.