IRELAND Law and Practice Contributed by: Enda Garvey, Brian McCloskey and Robert Maloney Derham, Matheson LLP
nature of the arrangement is such that it is more akin to a joint venture.
can be pierced – for example, in the context of envi - ronmental or health and safety legislation or where “pooling orders” have been made. The effect of these provisions is that management and, in even more lim - ited circumstances, shareholders can be made liable for the acts or omissions of a portfolio company – although such events are extremely rare in Ireland.
9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights In addition to holding the majority of the voting rights in a target or HoldCo, private equity investors will seek to include specific covenants and management pro - visions in any shareholders’ agreement entered into with management to ensure they have control over the material business decisions made by the target. The transaction documents will typically provide for the private equity investor to assume control of the composition of the target’s board of directors, includ - ing veto rights over material business decisions and provisions for the submission of regular financial and event-driven reporting to the sponsor, creating an oversight mechanism for the private equity investor. Notably, there has been an increased focus on ESG and regulatory reporting obligations, including flexibil - ity to update policies and reporting formats to enable financial sponsors to adapt to their evolving reporting obligations. Financial sponsors will also look to include emergen - cy powers with step-in rights and freezing of certain management rights during certain periods or on the occurrence of certain events. There is often a catch- up right for management if there are debt or equity issuances during such emergency periods. 9.2 Shareholder Liability An Irish private equity fund will generally be structured as a limited partnership. Its wholly owned subsidiaries utilised as investment vehicles will usually be incorpo - rated as private limited companies. Thus, provided the portfolio company is a limited liability company, it will enjoy a separate legal per - sonality and Irish courts will not “pierce the corporate veil” to impose personal liability on shareholders for the actions of its portfolio company unless there has been fraudulent activity. Irish legislation also provides for limited circumstances where the corporate veil
10. Exits 10.1 Types of Exit
In recent years, exits in Ireland are typically achieved via a sale process to other private equity-backed investors or corporates, rather than by IPO. This usu - ally takes the form of a sale or liquidation of the port - folio company. This is so, given the recent lack of IPOs in the Irish market. Although it remains rare for a private equity investor to continue to be a shareholder in a portfolio company beyond the term of the initial investment, continua - tion funds are emerging as a viable exit alternative for private equity investors. This is a particularly useful option where investors foresee a better exit down the line and additional liquidity will assist in making this more likely. 10.2 Drag and Tag Rights Drag and tag rights are staple provisions in most equi - ty arrangements in Ireland. They are usually structured with the aim of making a sale more attractive to poten - tial buyers by providing a mechanism to allow for the entire interest in a company to be sold. Although drag rights are commonly provided for in shareholders’ agreements, they are rarely utilised in practice. Where they do arise, it will generally be the private equity fund that has the right to exercise them and only very rarely will a fund be subject to being dragged along. Tag rights are also common in Ireland and allow for minority shareholders to have the opportunity to sell their shares on the same terms as the majority shareholder(s).
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