On 20 June 2019, the Irish Government published the Investment Limited Partnership (Amendment) Bill 2019, which proposes to reform and modernise Irish legislation regulating investment limited partnerships. It is anticipated that the reform of Irish investment limited partnership legislation, if enacted, will make Ireland an attractive domicile for the establishment of regulated partnerships.
An investment limited partnership (ILP) is one type of Irish vehicle that can be used for managing Irish regulated investment funds. An ILP is established and governed by a partnership agreement between one or more general partners, and one or more limited partners, i.e. the investors. An ILP is not an incorporated undertaking, it does not have a separate legal existence, it cannot enter into contracts in its own name and it cannot sue or be sued in its own name. A general partner is appointed and has responsibility for the management of the ILP, such as entering into contracts and suing or being sued on behalf of the ILP. For an ILP, the general partner must be Irish resident. All investors subscribe to the ILP as limited partners and will not be liable for the debts or obligations of the ILP beyond the amount of capital contributed or undertaken to be contributed to the partnership. ILPs are particularly suitable vehicles for investing in real estate, infrastructure, sustainable finance, private equity and credit funds. ILPs are typically regarded as tax transparent structures for US taxable investors.
The Irish Government in its 2018 Action Plan identified several initiatives for the further development of Ireland’s international financial services sector. Amongst the opportunities for growth in the financial services sector, the Action Plan identifies proposals to promote the establishment of private equity funds and venture capital fund vehicles in Ireland. Although ILPs may be established under the Investment Limited Partnerships Act, 1994 (1994 Act), the ILP structure was seldom used in practice. To promote the formation of private equity and venture capital funds in Ireland it was decided to update and modernise the 1994 Act. The reform of partnership legislation is designed to bring ILPs into line with other fund structures, to clarify the rights and obligations of investors and amend provisions of the 1994 Act which require updating as a result of the application of AIFMD and other investment fund legislation.
The Bill was published on 20 June 2019 and the following is a summary of the main changes that the Bill proposes to make to the 1994 Act:
Facilitating the establishment of umbrella funds
The Bill proposes to allow an ILP to be structured as an umbrella fund with segregated liability between its sub-funds.
An umbrella fund is a vehicle that has a single parent structure that is divided into a number of different sub-funds, each sub-fund represents a separate portfolio of investments that allows units/partnership interests to be issued in each sub-fund to investors. The principle of segregated liability means the assets of one sub-fund belong exclusively to that sub-fund and that the liabilities attributable to one sub-fund are not permitted to be discharged out of the assets of another sub-fund.
The rationale for using an umbrella structure is to offer investors a choice of sub-funds that can accommodate different types of investments and investment strategies within the umbrella vehicle. An umbrella vehicle should be able to benefit from certain efficiencies such as a faster speed to market for the establishment of additional sub-funds and assuming the umbrella fund is efficient and scalable, a possible reduction in the fees of service providers.
Extending the limited liability safe harbour provisions
Under Irish partnership law, a limited partner may become liable for the debts of the partnership if it participates in the conduct of the business of the partnership. It is important that there is certainty under Irish law regarding the activities that a limited partner may undertake without losing its limited liability status. The Bill proposes to extend the list of safe harbour provisions and provide express clarification that limited partners may participate in limited partner advisory committees and may also vote on changes to the partnership agreement without losing their limited liability status.
Permitting a partnership agreement to be amended by majority consent
The Bill aligns the ILP with other Irish fund structures by removing the requirement for the unanimous consent of all limited partners in relation to any amendment of the partnership agreement.
The Bill proposes that a partnership agreement may be amended if all of the partners are notified in advance and the alteration is approved by majority consent of the partners. Alternatively, the Bill provides that a partnership agreement may be amended if the depositary, as permitted under the partnership agreement, certifies that the proposed amendments do not prejudice the interests of limited partners and provided the amendment does not, in accordance with the requirements of the Central Bank, apply to a matter that requires the unanimous approval of all limited partners.
Clarifying limited partner obligations
The Bill proposes to clarify that limited partners will not be required to contribute to the capital of the partnership except in the circumstances prescribed in the partnership agreement. The proposed amendment removes the risk that limited partners could be required to contribute to the partnership in the event of the insolvency of the partnership. If implemented, this will modernise distribution and return of capital provisions to reflect the requirements under AIFMD and those applicable to other Irish regulated fund structures.
Allowing the use of an Alternative Foreign Name
The Bill permits an ILP to use an alternative foreign name (or its translation into English) in a territory outside of Ireland, which may consist of any letters, characters, script, accents or other diacritical marks that do not utilise the Roman alphabet. This change reflects the global nature of the funds industry and Ireland’s openness to accommodate asset managers from around the world who will be able to establish an ILP domiciled in Ireland, whilst using a foreign name that has developed investor recognition.
Facilitating the replacement of the General Partner
The Bill facilitates the replacement of a general partner by confirming that all property rights of every description of the ILP, including all choses in action and rights to make capital calls and receive the proceeds held by the departing general partner will automatically vest in the incoming general partner without formalities or notification being required.
The Bill makes other technical amendments to the 1994 Act such as amending references to legislation which has subsequently been amended and making the relevant amendments to conform with AIFMD and other investment fund regulations.
The Bill will progress through the legislative stages of both Houses of the Oireachtas (the Irish parliament) before it may be enacted. When the Bill is enacted it is hoped that Ireland will have an up-to-date regulated partnership vehicle that is suited to the current needs of the private equity community and which will serve as a viable alternative to other Irish investment fund structures.
The content of this article is provided for information purposes only and does not constitute legal or other advice.