Minister Ahern announces the Signing into law of Investment Funds, Companies and Miscellaneous Provisions Act 2005

Note for Editors

The Investment Funds, Companies and Miscellaneous Provisions Act provides for:

the introduction of a Non-UCITS contract fund structure i.e. the Common Contractual Fund (CCF) structure;

the amendment of the Companies Act 1990 and the UCITS Regulations to provide for the introduction of segregated liability and cross investments for investment funds;

the amendment of the Companies Acts relating to Market Abuse – these provisions will mostly be commenced on 6 July 2005 to dovetail with commencement of Regulations to transpose the EU Market Abuse Directive;

the amendment of the Companies Acts 1963 dealing with Offers to the Public - these provisions will mostly be commenced on 1 July 2005 to dovetail with commencement of Regulations to transpose the EU Prospectus Directive;

other miscellaneous amendments to the Companies Acts to remove anomalies, rectify incomplete or incorrect cross references in existing law and facilitate operators using electronic technology; and

the amendment to certain pieces of consumer protection legislation largely to increase the maximum fines that can be imposed on conviction.

1. Common Contractual Funds

The legislation provides the legislative framework for an Irish authorised and regulated investment fund structure which will allow for the pooling of assets by institutional investors. For example, many multinational companies operate pension schemes in a number of different jurisdictions for the benefit of employees in those jurisdictions. When these local pension funds are centralised/pooled a number of cost savings are achieved through economies of scale. These savings include a reduction of management fees, administration costs and custodian fees. In addition, the pooling of assets allows smaller individual funds to diversify their risk by using a larger number of investment managers than would be possible if they were to operate on a stand-alone basis.

The consolidated UCITS (Undertakings for Collective Investment in Transferable Securities) Regulations (S.I. 211 of 2003 as amended) provided the legislative framework for the establishment of the UCITS Common Contractual Fund, the UCITS CCF. However, UCITS structures by their very nature include inherent restrictions such as those related to investment policy, acceptable asset classes, borrowing restrictions etc. These restrictions limit the value of the UCITS CCF structure and highlighted the need for a CCF beyond the UCITS structure to complete the product range.

2. Segregated liability and cross investments for Investment Funds ( Part XIII of the Companies Act 1990 and UCITS)

Segregated liability

Ideally, an investor who invests in a particular sub-fund should be in the same position as if that sub-fund were itself a limited liability company. The investor should be subject only to investment risks and liabilities incurred in the pursuance of the investment strategy attributable to the sub-fund in which it has chosen to invest and should not be exposed to potential liability as a result of activities in other sub-funds. The amendments to Part XIII of the Companies Act 1990 provides for this segregated liability. This brings us on par with France and Luxembourg - two of the largest fund markets in the EU - who already provide this option for sub-funds.

Cross investment

The 1990 Act is also amended to provide for cross investment by investment companies established under Part XIII of the Act. These provisions facilitate investment by one sub-fund of an umbrella fund into another sub-fund of the same umbrella. This was previously permitted in investment funds which are structured as unit trusts but was not possible in investment companies because the legislation previously provided that shares purchased by an investment company must be cancelled. This meant that an investment company couldn’t purchase shares in itself and hold these for the benefit of the investors in a particular sub-fund. Provisions in Part 3 of the Act remove this prohibition.

Segregated liability and cross investment for UCITS

The Schedule to the Act amends the UCITS Regulations to allow investment companies established as UCITS to operate segregated funds and engage in cross investment.

3. Amendment of the Companies Acts relating to Market Abuse / Insider Dealing

Up to now Part V of the Companies Act 1990 contained the national law relating to Insider Dealing. A new more comprehensive EU Directive covering Market Abuse (which deals with Insider Dealing and Market Manipulation) together with three associated Commission implementing Directives and one Commission Regulation must be implemented. The EU Instruments will be transposed by Regulations to be made under section 30 of this Act and to be commenced on 6 July – this will be the subject of a separate press release. At the same time the other provisions in this Act relating to Market Abuse (Part 4) will be commenced including the repeal of existing provisions on Market Abuse (other than in respect of the recently launched Irish Enterprise Exchange).

4. Amendment of the Companies Acts relating to Prospectuses for Listed Securities / Offers to the Public

In its first Report in December 2001, the Company Law Review Group recommended a number of changes to company law to remove anomalies and other provisions in the Companies Acts relating to offers of securities and debentures to the Public, arising from the interaction of provisions in the Companies Acts 1963, the European Communities (Stock Exchange) Regulations 1984 and the European Communities (Transferable Securities and Stock Exchange) Regulations 1992. There had also been a number of amending Regulations to transpose changes which had been adopted subsequent to the original EU Directives.

In the meantime, a new Prospectus Directive, dealing in an integrated way with offers of Listed Securities as well as direct offers to the public has been agreed and is due for transposition by 1 July 2005. The Prospectus Directive will be transposed by Regulations to be made under section 46 of the Act and to be commenced tomorrow (1 July 2005) – this will be the subject of a separate press release. At the same time the other provisions included in Part 5 of the Act relating to prospectuses will be commenced.

One of the main features of Part 5 of the Act is that offers of securities that are excluded from the Prospectus Directive will not be subject to national prospectus rules but they will be required to contain a clear warning that such offers are not prepared pursuant to the Prospectus Directive and have not been approved for issue by any regulatory authority.

5. Miscellaneous Amendments of the Companies Acts

A number of other necessary provisions and amendments to the Companies Acts are included in Part 6 of the Act. These arose from difficulties with the operation of existing provisions in the law and, for example, to facilitate operators using electronic technology. In addition, the provisions address the need to rectify incomplete or incorrect cross references in provisions contained in the Companies (Auditing and Accounting) Act, 2003, which only came to light post enactment and when the relevant provisions were being considered for commencement.

6. Amendment of Consumer and other Legislation

Rather than enact separate amending Consumer legislation, the opportunity was availed of to make some necessary amendments to Consumer law in this Act. In this regard, the maximum level of fines that can be imposed on conviction for breach of several pieces of consumer protection legislation have been increased. Also the Package Holidays and Travel Trade Act 1995 has been amended to increase the timeframe within which a prosecution may be taken under the Act from 12 months to 2 years.

Other legislation also amended in Part 7 of the Act include:

Irish Takeover Panel Act;

Competition Act;

Industrial and Provident Societies Act;

Central Bank Act.

ENDS