23rd December 2014
Many of the fund managers we speak to are now aware of the amended Partnerships (Accounts) Regulations 2008 which seeks to impose a consolidation requirement on Scottish or English Limited Partnerships with a UK or UK equivalent corporate General Partner (“GP”). However, what does surprise us is that with only a couple of weeks left to its application, we have seen a variety of responses from fund managers. Funds with 31st March year ends still have time to respond to the changes in the regulations, however funds with 31st December year ends have already had to gear themselves up for changes. They have dealt with these changes in the following ways:
Funds which have changed the legal structure of their GP entities are no longer concerned about the amended regulations so have nothing to do.
Funds which haven’t will have to consider the practical implementation of the amended regulations, especially for funds having 31st December year ends (in terms of financial statement disclosure requirements and making the accounts publicly available). For qualifying partnerships, it is likely different accounting and auditing firms may have different views as to how the accounts would have to be prepared at the fund level. It will also be interesting to understand the accounting implications on debt funds and fund of fund structures as in these instances there is unlikely to be "control" or "significant influence" exercised by the fund on the underlying asset classes.
In our guest article ("Keeping Private Equity private"), Helen Parsonage from Osborne Clark explores how to identify whether you are affected and some steps to follow if you are.
For funds with a 31st December year end it is a little late to react but funds with 31st March year ends would definitely benefit with having a timely conversation with their legal advisors particularly to learn from the challenges faced by funds that have been caught under the amended regulations.
If you have any technical questions concerning the operational or practical aspects of the Partnership (Accounts) Regulations 2008, then please contact:
Head of private equity
T: +44 20 3597 7927
Keeping Private Equity private
Recent changes to the Partnerships (Accounts) Regulations 2008 (the "Regulations") mean that funds structured as Scottish or English limited partnerships may have to create partnership accounts and reports in accordance with UK GAAP or IFRS and, in some cases, file those documents with UK Companies House. Previously, UK limited partnerships were able to avoid this obligation even where the general partner ("GP") was a limited company.
Below we identify which structures will be affected by the changes, set out what those changes are and what action may be taken to move affected structures back outside the scope of the Regulations.
1. Are you affected?
Any UK limited partnership which meets the new definition of "qualifying partnership" will be within the scope of the Regulations. Under the new definition, a UK limited partnership will be a "qualifying partnership" if each of its GPs is:
This means that many UK limited partnerships which have replaced their GP with an offshore GP (for example an English limited partnership with a Jersey company GP) will also be "qualifying partnerships" for the purposes of the amended Regulations.
2. How will qualifying partnerships be affected?
Requirement to prepare accounts:
The main implications for a qualifying partnership are two-fold. Firstly, it must create audited partnership accounts and reports as if it were a company. These accounts and reports would have to be prepared in accordance with the UK Companies Act 2006 and accord with appropriate accounting standards (such as the UK GAAP or IFRS), although there are some adaptations of the rules for limited partnerships.
At a minimum, this means the limited partnership would need to prepare annual accounts and a directors' report (although, as a limited partnership has no directors, this report will in effect be a general partners' report and have limited content). Unless an exemption is available, the limited partnership will also have to prepare a strategic report containing information about how the partnership has performed, giving a fair review of the partnership's business and a description of its principal risks and uncertainties.
The accounts will also be subject to audit and consolidation unless any exemptions are available.
The accounts and any reports required will need to be prepared within 9 months of the limited partnership's financial year end.
Requirement to file or make available the accounts:
Secondly, the GP must either file or make available those accounts
Where the qualifying partnership has a UK limited company as a GP, the GP must file the accounts and reports of the partnership, alongside its own, at Companies House.
Where the obligation to file the accounts and reports does not apply, the Regulations provide instead that the GP must make the latest accounts and reports available for inspection in the UK by any person, without charge, during business hours. The documents should be located at the limited partnership's principal place of business in the UK (or, if it has none, at the GP's principal place of business or head office in the UK. If there is no such place, then the GP may nominate an address where the accounts and reports will be available, for example with its process agent).
3. Are there any alternative approaches?
Many fund managers concerned with the additional compliance burden or public disclosure implications of these new rules are choosing to replace the existing GPs of their affected fund vehicles with a UK limited liability partnership (LLP) or to add an LLP GP to act alongside the existing GP. A limited partnership with a UK LLP GP remains outside of the new definition of "qualifying partnership", although some practitioners have taken the view that using a non-UK based LLP in this way may not achieve the desired result.
Care should of course be taken that any reorganisation of a fund complies with any restrictions in its constituting documents (for example, investor consents), and does not have an unintended effect from a tax perspective (for example taking the GP outside of the fund manager's VAT group, or incurring any transfer taxes).
4. When must this be dealt with by?
Time is running out for partnerships which wish to re-structure to take themselves outside the scope of the amended Regulations. The amendments apply to financial years beginning on or after 1 October 2013 and whether or not a partnership is a "qualifying partnership" is tested at the end of the financial year.
So, for example a fund with a 31 December or 30 March year-end would be required to comply with respect to the financial year ending on 31 December 2014 or 30 March 2015 (respectively), if it qualifies as at that date. Therefore there is still time for those funds to revisit their structures if they wish to fall outside of the new regime.