All change - the review of Irish limited partnership law in 2019 should be good news for private fund managers

Introduction

The imminent publication by the Irish government of the Investment Limited Partnerships (Amendment) Bill, together with the release of the Department of Business, Enterprise and Innovation’s (DBEI) consultation paper, “Review of Limited Partnerships Act 1907” mean that significant changes are afoot for both Irish investment limited partnerships (ILP) and limited partnerships (1907 LP).

The adoption of the proposed changes in respect of the ILP are at an advanced stage and these changes, it is hoped, will increase the flexibility available under the current ILP rules, bringing these more into line with similar structures in other international fund domiciles. The result should be to make the ILP more attractive for private equity managers to establish their funds in Ireland.

The DBEI consultation in respect of the 1907 LP is at a more embryonic stage. The consultation itself, however, is a positive step towards Ireland being able to offer a “best in class” limited partnership structure for managers seeking either a regulated or an unregulated structure.

ILPs

The ILP is a regulated Irish fund structure which takes the form of a common law partnership. It is authorised and regulated by the Central Bank of Ireland (CBI).

ILPs are constituted by a limited partnership agreement (LPA) and do not have legal personality. Each ILP must operate through a general partner (GP). The LPA is entered into between the GP and the investors of the ILP, ordinarily by way of a separate subscription agreement pursuant to which each investor provides authority to the GP to sign the LPA on their behalf. Upon admission of the investors as partners of the ILP, each such investor will become a limited partner (LP) of the ILP.

To date relatively few private funds have been set up as ILPs despite such structures being available in Ireland since the adoption of the ILP Act in 1994. Following discussions between the Irish funds industry, the CBI and the Irish Department of Finance, many of the perceived shortcomings associated with the ILP structure are now being addressed by the imminent publication of the Investment Limited Partnerships (Amendment) Bill.

The Bill is expected to bring about a number of positive changes to the ILP Act, matching the best features from rival jurisdictions. These include:

• modernising and improving the operation of ILPs
• bringing the ILP Act better into line with the AIFMD;
• permitting the use of a dual foreign name; and
• permitting the establishment of umbrella ILPs.

1907 LPs

Like the ILP, the 1907 LP is a common law partnership and formed by the execution of an LPA between at least one GP and at least one LP. However, the approval of the CBI is not required to form and operate a 1907 LP. A key attraction of the 1907 LP is that it operates outside of the broader AIFMD ambit, albeit that the appointment of an alternative investment fund manager (AIFM) is required.

A 1907 LP is not subject to regulation, is very cost effective to establish and maintain and has similar features to the ILP as well as to limited partnerships in other jurisdictions. A 1907 LP, for example, does not have legal personality but must act through its GP, which may be an individual or a company.

While the GP is liable for all the partnership debts and obligations, the liability of an LP is limited to the LP’s unpaid capital commitment. This limited liability is, though, subject to the LP taking no part in the management of the business of the 1907 LP - a number of “safe harbour” actions exist, which an LP can take without being considered to be taking part in the management of the business.

The Irish governmental authority for a 1907 LP is the Companies Registration Office (CRO). Currently, each 1907 LP must make a filing with the CRO to safeguard the limited liability of its LPs. If such a filing is not made, the 1907 LP will be considered a general partnership - each of its LPs would be considered to be a GP of the 1907 LP and, accordingly, liable for the partnership’s debts and obligations.

The DBEI consultation paper in respect of the 1907 Act seeks views on the general fitness for purpose of this Act.

As the 1907 Act is the same piece of legislation pursuant to which UK limited partnerships are established, the changes made to the equivalent acts in the UK since Irish independence and also more recent amendments recently considered in the UK are expected to be of particular relevance and importance in respect of this consultation. The consultation period closes on Friday, 1 March 2019.

The consultation asks stakeholders to comment on a range of high-level questions, including:

• the perceived benefits of limited partnerships for the Irish economy
• what might explain the rise in registrations of 1907 LPs from around 1,100 in 2015 to over 2,500
• whether 1907 LPs should be required to submit an annual return to the Registrar of Companies and/or financial statements to the CRO
• whether 1907 LPs should be required to maintain a principal place of business and a registered office in Ireland
• whether the Registrar should be given the power to remove and strike 1907 LPs off from the register.

The expectation is that this consultation will lead to an overall review of aspects of the 1907 Act and the consequential updating of its provisions, allowing greater flexibility to limited partnerships formed under it.

Marketing Passports

One of the key benefits of both the ILP and the 1907 LP is the ability of such structures to access pan-European marketing passports.

Whilst the AIFM marketing passport is well publicised, the marketing passport provided pursuant to the European Venture Capital Fund Regulation (EuVECA) should not be disregarded, in particular by smaller managers. Unlike the AIFM marketing passport, the EuVECA marketing passport is also available to registered AIFMs, being those managers which are not required to seek authorisation pursuant to, or comply with the full provisions of, the AIFMD on the basis that the assets under management of such a manager does not exceed €100m, or €500m if the funds managed by the manager are unleveraged and have no redemption rights exercisable during a period of five years following the date of initial investment. These thresholds are ordinarily calculated on the basis of drawn down capital commitments, rather than the total capital commitment including undrawn capital commitment. In addition, the permitted target investors under the EuVECA passport regime is also broader than the AIFM marketing passport in that, in broad terms, high net worth individuals may also be marketed to.

Conclusion

While the steps to amend the ILP Act and the 1907 Act are at different stages (and mindful that the legislative timetable in 2019 is less certain than usual given the possible impact of Brexit), the revisions which seem likely to be made should give private fund managers reason to see Ireland as being determined to remain a highly attractive and competitive location in which to establish private equity funds.