I move: "That the Bill be now read a Second Time."
I welcome the opportunity to address Dáil Éireann today on the Investment Limited Partnerships (Amendment) Bill 2019, which was published on 18 June 2019. The Bill seeks to update the operation of the Investment Limited Partnerships Act to implement changes which were put forward in the IFS 2020 action plan and more recently the Ireland for Finance strategy. The amendments proposed in the Bill will modernise the operation of investment limited partnerships, ILPs, in Ireland. These amendments will support the further development of the funds industry in Ireland. As part of these amendments to the ILP framework, the Bill is also making a number of technical amendments to the Irish Collective Asset Management Vehicles Act of 2015.
The Minister for Finance, Deputy Donohoe, and I launched the Ireland for Finance strategy earlier this year. It is a multi-annual plan setting out the Government's commitment to further develop the successful international financial services industry. The strategy makes clear that Ireland's success in attracting top tier global financial services is set against an increasingly dynamic and competitive backdrop. The changes I put forward today to amend the Investment Limited Partnerships Act 1994 and the Irish Collective Asset-management Vehicles Act 2015, known as the ICAV Act, form part of that strategy. They aim to enhance Ireland's offering for investment funds and improve our robust and transparent regulatory environment for investment funds.
The Irish funds industry is a key part of the internationally traded financial services sector, also referred to as the IFS. In June 2019, there were 7,531 investment funds authorised and regulated by the Central Bank of Ireland. Some 16,000 people are employed directly and indirectly in the industry and the industry generates substantial direct and indirect Exchequer receipts. The funds industry in Ireland is not just based in Dublin but provides high quality jobs across the country. Ireland's offering in alternative investment fund domiciliation is already strong due to a highly educated and motivated staff and a pro-business environment that is overseen by a regulatory regime, which is responsive to the needs of industry while all the time ensuring the protection of the interests of investors. The intention of this Bill is to ensure our corporate structures for investment funds remain fit for purpose and maintain our strong global reputation as a jurisdiction to domicile investment funds.
An investment limited partnership, ILP, is a regulated partnership structure that does not have a separate legal personality. ILPs are tailored specifically for investment in a collective investment fund. An ILP is formed under the Investment Limited Partnerships Act 1994 and is established once it is authorised by the Central Bank of Ireland. It is constituted according to the partnership agreement entered into by one or more general partners, who manage the business of the partnership, and any number of limited partners. The general partner has unlimited liability in this structure, while limited partners can, at a maximum, only lose their investment in the ILP.
When compared with our other investment funds vehicles ILPs have particular advantages for specialised investment schemes such as private equity or venture capital funds which have smaller numbers of professional investors and also have more bespoke investment structures, such as investments made by partners at predetermined points in time and different ways of splitting the gains and losses from the partnership. In an ILP, the general partner is responsible for managing the business of the ILP and is ultimately liable for the debts and obligations of the ILP to the extent that the ILP does not have sufficient assets. An ILP is subject to oversight by the Central Bank of Ireland and will be subject to its rules regarding Irish domiciled alternative investment funds.
The ILP Act has been in use since 1994. It is widely acknowledged that it is needs to be updated to fit the environment at which it is aimed and to take account of the changes that have been introduced in Europe via the alternative investment fund managers directive, AIFMD. This revision is aimed at modernising the legislation by making changes such as allowing an advisory role in the management of the fund for limited partners without putting their limited liability at risk. The changes proposed in this Bill will enable Irish industry to compete for some of the global private equity market that to date has chosen other European or global locations to base such investment funds.
The Bill also makes minor changes to the ICAV Act 2015, including correcting typographical errors and aligning the Act with other company legislation. The ICAV is a legal structure for the holding of investment schemes established in accordance with the ICAV Act 2015. The ICAV structure was specifically designed to be distinguishable from a trading company. A number of Irish company law provisions are often irrelevant or inappropriate to investment funds and can create unintended consequences where applied in the funds context. I will set out later the changes being made to the ICAV legislation in this Bill which are technical in nature.
I will now outline the key features of the Bill. The Bill contains three Parts. Part 1 is the preliminary and general section, Part 2 relates to ILPs and Part 3 to the ICAV Act. The first Part of the Bill consists of three sections. It deals with preliminary matters and contains definitions used in the Bill. Section 1 provides in standard form for the Short Title and commencement. Section 2 provides in a standard form the collective citation. Section 3 is a standard form for clarifying the Acts referred to in the Bill which are the Investment Limited Partnerships Act 1994 and the Irish Collective Asset-management Act 2015.
A number of changes to ILPs relate to alignment with EU and domestic funds legislation, for example, changing the term "custodian" to "depositary". There are also some typographical corrections, correction of cross-references and replacement of the term "Companies Act 1963" with "Companies Act 2014". Section 4 adds definitions for new terms relating to "alternative foreign name", "depositary", and "limited partner". The section also transfers responsibility for the Act from the Minister for Business, Enterprise and Innovation to the Minister for Finance.
Section 5 replaces the word "custodian" with "depositary" throughout the Act of 1994 to align it with other funds legislation. Sections 6 and 35 insert text to permit the establishment of umbrella funds. These sub-funds permit the establishment of a fund with several distinct sub-funds that are traded as individual investment funds but are not liable for the debts of the other sub-funds under the umbrella. These funds will share a general partner but are ring-fenced from each other in the event of insolvency. This "umbrella" framework also exists in other investment fund vehicles, including ICAVs and common contractual funds.
Section 7 amends section 6(4) of the Act of 1994 to permit a limited partner to participate on boards and committees related to an investment limited partnership. This adds board participation to the "White List", a list of activities which, if undertaken by a limited partner, will be deemed not to be taking part in the conduct of the business and so does not result in loss of liability for a limited partner. The white list concept is common to limited partnership regimes in other jurisdictions such as in the Legislative Reform (Private Fund Limited Partnerships) Order 2017 in the United Kingdom, which clearly sets out the actions that are not regarded as taking part in the management of the partnership business for the limited partner.
Section 8 amends section 8(4) of the Act of 1994 to correct the reference to the fee prescribed under the Central Bank Act 1942. This is to correct a typographical error. Section 9 amends section 8(4A) of the Act of 1994 correcting a cross-reference, adding reference to the "alternative foreign name", changing the "Companies Act 1963" reference to the "Companies Act 2014" and deleting the reference to "and address".
Section 10 adds a new section 8(4B) to the Act of 1994 to allow the use of an alternative foreign name in the case of foreign investment limited partnerships. Section 11 amends section 8 of the Act of 1994 by adding a new section 8A to give the Central Bank the power to refuse to authorise an investment limited partnership where the name, or alternative foreign name, of the ILP is deemed undesirable.
Section 12 substitutes section 10 of the Act of 1994 with new requirements for the Central Bank of Ireland to maintain records of all investment limited partnerships authorised. That is to align the requirements with records maintained with other funds legislation. Section 13 amends section 11(1) of the Act of 1994. Section 11(1A) of the 1994 Act sets out the requirements for amending a partnership agreement, requiring all partners to be notified prior to an alteration and provides for alterations in writing via the agreement of the majority of partners, provided the existing partnership agreement allows for changes via majority.
Section 11(1B) of the 1994 Act allows for alterations to the partnership agreement to be implemented if the depositary certifies in writing that the alteration does not prejudice the interests of the limited partnerships, provided that the alteration is not one which the Central Bank of Ireland stipulates must be made via section 11(1), and that the partnership agreement provides that the depositary has the power to certify that the alteration does not prejudice the interests.
Section 14 adds two new subsections to section 11 of the Act of 1994. Section 11(5) creates a statutory transfer of assets and liabilities on the admission or replacement of a general partner, so that all rights or property of the investment limited partnership shall vest in the incoming partner or existing general partners. Section 11(6) sets out a similar provision on the withdrawal of a general partner, wherein all rights or property of the investment limited partnership shall vest in the remaining partner or existing partners.
Section 15 amends section 12(2) of the Act of 1994 to stipulate that the words "investment limited partnership" or “comhpháirtíocht theoranta infheistíochta”, or "CTI", which the Irish acronym for ILP, must be used at the end of the name of every investment limited partnership. It also states that where an investment limited partnership is permitted to use an alternative foreign name, it must use the words "investment limited partnership" at the end of the name in the same language as the alternative foreign name.
Sections 16 and 17 are technical amendments relating to the maintenance of the register of the ILP. Section 18 deletes section 14(3) of the Act of 1994. Section 19 inserts a new subsection 19A to the Act of 1994 setting out the meaning of "majority of limited partners" for different purposes, for example, in regard to rights or interests of a majority of the limited partners, and in regard to its use of simple majority.
Section 20 replaces section 20 of the Act of 1994 and sets out how capital contributions by limited partners and liability of limited partners for partnership debts operates. Section 21 rewords and expands section 22(2) of the Act of 1994 for greater clarification. Section 22 clarifies that section 30 of the Bankruptcy Act 1988 only applies where the general partner adjudicated bankrupt is the sole general partner. Section 23 amends section 24(4) of the Act of 1994 by inserting two subsections to permit the investment limited partnership to purchase insurance for a general partner or auditor, or former general partner of a former auditor, to indemnify him against any liability in the event of a case of negligence or default where the general partner or auditor is found not be negligent or in default.
Section 24 amends section 24, subsections (5) and (6), of the Act of 1994 to ensure that if the partnership agreement provides that where a partner fails to perform any of its obligations under, or otherwise breaches, the partnership agreement, the sanctions applicable for the failure of performance or breach will not be unenforceable solely because they are penal in nature. This is necessary because 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.
Section 25 amends section 25, subsections (1) and (4), of the Act of 1994, substituting "a general partner" for "every general partner" in subsection (1) and "subsidiary" for "associated undertaking" in subsection (4). Section 26 amends section 27 of the Act of 1994 to provide greater clarification of the subsection being referenced and rewording of text. Section 27 amends section 29 of the Act of 1994 by deleting subsection (3) to remove the requirement for the bank to publish notice of revocation of authorisation in Iris Oifigiúil. Section 28 amends section 31(1) of the Act of 1994 by inserting the words "or depositary" after "proposed new general partner".
Section 29 amends section 33(3) of the Act of 1994. It is a technical amendment to require the general partner to notify the limited partners of a direction from the bank immediately upon receipt.
Section 30 amends section 35 of the Act of 1994 to correct a typographical error: section 35, subsections (7) and (8), are updated to refer to "officer of such a general partner" rather than "officer of the investment limited partnership."
Section 31 amends section 37 of the Act of 1994. Section 37, subsection (1), is amended to clarify that there must be at least one general partner so as to avoid conflict with section 5(1)(b) of the Act of 1994. Section 37, subsections (2) and (3), are amended so that the partnership is not immediately dissolved in the case of death, but within a time period as specified by the Central Bank of Ireland.
Section 32 clarifies that the limited partner does not have unlimited liability for the debts of the partnership once the partnership is dissolved unless the limited partner purports to carry on the business of the partnership after dissolution. Section 33 amends section 39 of the Act of 1994 to ensure that limited partners who do not take any part in the conduct of the business of the partnership cannot be prosecuted for any offences committed in the management of the partnership.
Section 34 amends the Act of 1994 by adding section 42A after section 42. Section 42A seeks to align the ability of an investment limited partnership to indemnify against liability with the ICAV Act 2015 and the Companies Act 2014. This reflects the changes that were introduced under the EU AIFMD, which provides for a liability regime for depositories set out under European legislation.
Section 37 adds a new section 2A to the ICAV Act 2015, providing supplemental interpretation provisions regarding ordinary and special resolutions. Section 38 amends sections 5 and 6 of the Act of 2015 to provide that the sole object in an ICAV constitutional document reflects Regulation 4(3)(a) of the UCITS Regulations (European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.l. No. 352 of 2011)). Section 39 adds a new section 8A to the Act of 2015 to ensure that the validity of an act done by an ICAV shall not be called into question on the ground of lack of capacity by reason of anything contained in the ICAV's instrument of incorporation, without affecting the duty of the directors of an ICAV to observe any limitation on their powers.
Section 40 adds a new section 8B to the Act of 2015 after section 8A to provide that a contract entered into outside the vires of an ICAV is nevertheless enforceable. The Company Law Review Group recommended in its First Report 2000-2001 that the ultra vires doctrine be abolished for companies limited by shares. The omission of such a provision in the ICAV Act was not intentional and this amendment is to bring the Act in line with this recommendation.
Section 41 amends section 14(2) of the Act of 2015 to require the Central Bank of Ireland to update the register following the change of name of an ICAV. Section 42 amends section 30 of the Act of 2015 to require the Central Bank of Ireland to alter the copy of the registration order and notify the ICAV of the same following the change of name of an ICAV. Section 43 amends section 32 of the Act of 2015 by deleting subsection (7), removing the requirement for the director of an ICAV acting on behalf of various ICAVs to sign an agreement multiple times in respect of the various ICAVs to which that agreement relates.
Section 44 amends section 33 of the Act of 2015 by inserting a new subsection (4) after subsection (3), clarifying the requirements for affixing or attesting to the affixing of the seal in circumstances where an ICAV has a seal. This aligns with similar provisions in the Companies Act 2014. Section 45 adds a new section 85A to the Act of 2015 to allow an officer of an ICAV to make an application to the court in anticipation of apprehended proceedings.
Section 46 adds Part 5A after Part 5 of the Act of 2015 containing three new sections - sections 91A, 91B, and 91C - regarding written resolutions. This is to align the Act with the similar provisions in sections 193 to 195, inclusive, of the Companies Act 2014. This change will provide for written resolutions by members of an ICAV in regard to the ICAV itself or a sub-fund, as well as the existing ordinary and special resolutions at a general meeting. This amendment also requires two additional amendments: sections 36 and 51. Section 36 amends section 2 of the Act of 2015 by adding a new definition of "Category 4 offence" to the definitions. Section 51 amends section 186 of the Act of 2015 by inserting a new subsection after subsection (3) stating that a person guilty of a category 4 offence under the Act shall be liable to a class A fine.
Section 47 amends section 96 of the 2015 Act by substituting a new subsection (8) clarifying that where an investment company converts to an ICAV, the priority of pre-existing charges should remain unchanged.
I have a couple of pages left. It is important to put this on the record.