Part 24 of the Companies Act 2014 applies to investment companies. It reenacts the Companies Act 1990 which provided for companies with variable capital for the purpose of acting as funds. See generally the sections on funds and the various type of entities which may be vehicles for use as funds.
An investment company is a public limited company, the sole object of which is stated to be the collective investment of its funds in property with the aim of spreading investment risk and giving the members of the company the benefit of the results of management of the funds. The company constitution must provide that the actual value of the paid up share capital of the company shall at all times be equal to the value of the assets of the company less deductions.
The shares of the company must be re-purchasable at the request of the holders out of the company’s assets.In effect, the assets should be worth the net value of the underlying fund. It should in effect be a passive vehicle.
Investment companies are significantly different to trading companies in that their capital may be readily redeemed. Various actions may be taken within certain bounds without falling outside the definition of a investment company.
Significant parts of Companies Act apply to investment companies, save to the extent that they are disapplied. The following provisions are in broad terms, disapplied:
- provisions regarding allotment of shares,
- financial assistance,
- valuation of share capital,
- reduction of share capital,
- acquisition of own shares,
- restriction on acquisition of own shares,
- restrictions on distribution out of realised profits,
- director’s compliance statements,
- audit committees,
- bonus issues, dividend procedures.
Other provisions vary significantly. The audit exemptions do not apply. Certain provisions applicable to public companies apply to investment companies.
An investment company may be formed for any lawful purpose by persona subscribing their name to the constitution and complying generally with the provisions in respect of registration of companies. Companies may be re-registered as investment companies subject to conditions. Investment companies may arise from mergers and divisions of bodies corporate.
The liability of members of an investment company is limited to the amount, if any, unpaid on the shares registered in their name. This is without prejudice to any other provisions of the Act which subject members to liability. A company may not be registered as an investment company unless it appears to the Registrar that it will carry on an activity in the State.
The constitution of an investment company is to be in the form of memorandum and articles of association together referred to as a constitution. The memorandum is to state the name; that it is a PLC; its objects as above; that the liability of its members is limited; and that the share capital of the company shall be equal to the value for the time being of the issued share capital; that the division of the share capital into a specified number of shares without assigning any nominal value; and that the issued share capital shall be not less than the minimum amount or more than a maximum amount specified.
The constitution shall state the number of members; be in accordance with the format in Schedule 16; be printed or be in a form capable of reproduction in legible form; and be signed by at least one witness; and attested or be authenticated electronically in the manner specified.
The Articles of an investment company shall contain regulations in relation to the company with respect to such aspects of the activity of collective investment as defined above or matters related thereto as are deemed appropriate and may contain other regulation. The mandatory provisions of the constitution shall apply and the optional provisions shall apply save to the extent that they are varied.
The existing memorandum and articles of association apply in respect of a pre-Act company save to the extent that they are varied by mandatory provisions of the constitution.
An investment company shall not carry on business in the State unless it has been authorised to do so by the Central Bank on the basis of criteria approved by the Minister. A person shall not carry on business on behalf of an investment company, in so far as it relates to the purchase or sale of the shares of the company, unless the investment company has been so authorised.
The Central Bank shall not authorise an investment company unless the company has paid up share capital which, in the Bank’s opinion is sufficient to enable it conduct its business effectively and meet its liabilities. An application for authorisation is made in writing to the Central Bank and is to contain such information as the Bank may require.
Where the Bank proposes to authorise an investment company to raise capital by providing facilities for the direct or indirect participation by the public in the profits of the company, it shall, in granting the authorisation, designate the company as a specially designated investment company which may accordingly raise funds in that manner.
Provision is made for certain existing investment companies to be regarded as specially designated companies. If a specially designated company does not provide the facilities for direct or indirect participation by the public in the profits and income of the company within a period not greater than six months, the company shall be deemed to have ceased to be a specially designated company.
An investment company which is not a specially designated company shall not raise capital by providing facilities for the direct or indirect participation by the public in the profits and income of the company.
Contravention of any of the above requirements is a category 2 offence. The company and the officers in default may be prosecuted accordingly.
The Central Bank may impose conditions on the grant of an authorisation as it considers appropriate and prudent for the purposes of the orderly and proper regulation of the business of the investment company.
Conditions may be imposed generally or in respect of particular classes of share or business. The Central Bank may impose further conditions from time to time as it considers appropriate.
Conditions imposed may include
- prudential requirements in respect of investment policies of the company,
- prospectuses and other information disseminated by the company,
- vesting of the assets in a trustee or custodian,
- such other supervisory and reporting requirements and conditions relating to the business as the Bank considers appropriate and prudent;
- supervisory and reporting requirements relating to the management of the business of a management company as the Central Bank considers appropriate and prudent to impose.
A company must comply with the terms of its authorisation. The custodian/trustee and management company must comply with the authorisation conditions. Failure to do so is a category 2 offence on the part of the company and every officer in default.
The grant of an authorisation does not constitute a warranty by the Central Bank as to the creditworthiness or financial standing of any company so authorised. The Central Bank is not be liable by authorisation or exercise of its functions in relation to investment companies for any default of the investment company, unless the Bank acted in bad faith in performing its functions.
The manner of purchase by an investment company of its shares shall be as provided in its articles. It shall not purchase its own shares, unless they are fully paid, subject to exceptions.
Shares of an investment company which have been purchased by it shall be cancelled. The amount of the share capital shall be reduced by the amount of the consideration paid for the purchase of shares.
An umbrella fund may, for the purpose of any of its sub-funds, acquire by subscription and transfer, shares of any class or classes, howsoever described, representing other sub-funds of the same umbrella fund provided that it is for the purpose of redemption at the request of members.
To the extent that the use of alternative bodies of standards do not contravene the general provisions in respect of financial statements, and give a true and fair view of assets, liabilities and financial positions, profits and losses etc. they may be used.Alternative body of accounting standards means standards and accounts of companies and undertakings that comply with bodies having authority to lay down standards in the United States; Canada; Japan; and any other prescribed state.
Provision is made for a corporate governance statement in the case of investment companies that are traded on stock exchange.
Legislation allows for corporates with and comprising umbrella funds and subfunds. The liabilities on behalf of or attributable to a sub-fund are to be discharged solely out of the assets of that sub-fund. No umbrella fund nor any receiver, examiner, liquidator, or other person shall apply, nor shall they be obliged to apply, the assets of any sub-fund in satisfaction of liability incurred on behalf of or attributable to any other sub-fund of the same umbrella fund.
An umbrella fund must ensure that the words “An umbrella fund with segregated liability between sub-funds” is included in all letterheads and agreements entered into by it in writing with a third party. It must disclose to a third party that it is a segregated liability umbrella fund before it enters an oral contract with the third party. Failure to do so is a category 3 offence on the part of the company and officers in default.
There is to be implied into every contract, agreement or transaction entered by an umbrella fund, that the parties contracting shall not seek recourse to the assets of any sub-fund, all or any part of the liability which was not incurred on behalf of that sub-fund. Further provision is made to ensure that if any party has recourse to any assets of any other sub-fund in discharge of a liability on behalf of the sub-fund with which it is dealing, the party is to be liable to repay the sum concerned equal to the other subfund.Similarly, provision is made in respect of recourse and the execution of a judgment. Sums recovered from other subfunds are to be held on trust for it.
Without prejudice to the above provisions, a sub-fund of an umbrella fund is not a legal person separate from the umbrella fund. The umbrella fund may sue and be sued in respect of a particular sub-fund and may exercise the same rights of set-off, if any, as between its sub-funds as apply at law in respect of companies and the property of a sub-fund is subject to the orders of the court as it would have been, if the sub-fund was a separate legal person.
The above provisions are not to prevent application of any rule of law that requires the application of an assets of a sub-fund in discharge of liabilities of another sub-fund on the grounds of fraud or misrepresentation.
A sub-fund may be wound up as if it were a separate company. In this case, the appointment of a liquidator or provisional liquidator shall be confined to the sub-fund being wound up.
There is provision for migration of funds into the jurisdiction. The Minister may make regulations prescribing places, from which funds may migrate, into the State. Provision is made for registration of inward migrating funds, authenticated of their certificate of registration, constitution of documents, particulars of directors and secretaries; statutory declaration regarding status and the migration; declaration of solvency; schedule of charges; details of name; copies of memorandum and articles of association are to be registered. If they are not in the English or Irish language, they are to be accompanied, where applicable by a translation.
A migrating company may apply to the State to be registered by way of continuation. Where the application is made, the Registrar shall not register the migrating company as an investment company, unless requirements of the Act regarding registration and matters precedent and incidental have been complied with. In particular, this shall include delivery of particulars in a prescribed form, authorisation by the Central Bank, statutory declarations as various matters. The Registrar may issue a certificate of registration of the migrating company.
The Registrar enters particulars of the date of registration of the migrating company. From the date of registration, it is deemed to be an investment company formed and registered under the Act. The Act applies to the migrating company.
This does not
- create a new legal entity or prejudice or affect the identity or continuity of the migrating company as previously established and registered under the laws of the relevant jurisdiction for the period that it was established;
- affect any contract, resolution; rights, authorities, functions or obligations; or render defective any legal proceedings .
The migrating company shall notify the Registrar of the registration.Any change in documents required to be registered must themselves be registered.
If a migrating company fails to comply with any of the above provisions, a strike off provision procedure applies. A warning notice is given by the Registrar. If the noncompliance is not rectified, the Registrar may proceed to deregister the company.
Provision is made for deregistration of an investment company which continues under the law of a jurisdiction outside the State. A statutory declaration of solvency is to be made in the prescribed form by the director. It is to be vouched by an independent person.
An application is to be made to the Registrar for deregistration in the State. Prescribed particulars must be delivered. The Registrar publishes the notice of the application in the CRO Gazette.
The holders of not less than 5% of the share capital or creditors may apply to court on notice to the applicant, the Registrar and the Central Bank and all creditors within 60 days, after the publication of the CRO notice for an order preventing the proposal of the resolution approving the deregistration.
The court may make an order prohibiting the deregistration, if it is satisfied that it would contravene the terms of an agreement or arrangement between the applicant and the shareholder or creditor or that the proposed de-registration would be materially prejudicial to any shareholder or creditor of the applicant or the interest of shareholders or creditors or both taken as a whole would be materially prejudiced.
The application for deregistration must include the prescribed transfer documents. The Central Bank must confirm it has no objection to de-registration, subject to conditions as may be specified.
Upon deregistration, the company shall enter the particulars of the deregistration, the relevant jurisdiction and the new name of the applicant, if different from the name under which it was registered. From the date of registration of the applicant in the relevant jurisdiction, it shall cease to be a company in the State and shall continue for all purposes as a body corporate under the laws of the transferee jurisdiction.
It does not operate to create a new legal entity, prejudice or affect the identity or continuity of the applicant as previously constituted under the laws of the State, affect any contract made, resolution or other act, things done, affect the rights, authorities, functions and liabilities and obligations of the applicant or other person; or render defective any legal proceedings. Legal proceedings continue notwithstanding de-registration.