On 19 July 2018, the Federal Government released the second tranche of the revised Corporate Collective Investment Vehicle (CCIV) Exposure Draft Bill (Tranche 2 Exposure Draft Bill) for public consultation. This follows the release of the first tranche on 13 June 2018. In our previous Alert we outlined some of the key features of CCIVs.
The Tranche 2 Exposure Draft Bill proposes further provisions concerning:
- external administration and winding up of a CCIV;
- the application of the financial services regime in Chapter 7 of the Corporations Act (the Act) to CCIVs;
- the liability of the corporate director of a CCIV and contraventions by the CCIV; and
- the application of the takeover provisions to CCIVs.
External administration of a CCIV in a wind up situation
The Tranche 2 Exposure Draft Bill introduces the proposed external administration regime as it would apply to CCIVs. In order to preserve the segregation of assets between sub-funds (which are an essential feature of a the new structure), the provisions would apply as if the CCIV comprised only of the sub‑fund that is affected by the winding up, disregarding any other sub‑fund of the CCIV. Therefore, a winding up procedure in respect of one sub-fund has no legal effect on the other sub-funds.
Voluntary administration will not be available to CCIVs, nor will the ASIC-initiated wind up procedures be applicable.
The "separating assumptions"
The winding up provisions operate in respect of each sub‑fund by applying four "separating assumptions". These assumptions are that:
- the only business carried on by the CCIV is the business of the sub‑fund in respect of which the CCIV is being wound up;
- the only shares issued by the CCIV are the shares referable to that sub‑fund;
- the only property of the CCIV is the property allocated to that sub‑fund; and
- the only debts and claims of the CCIV are the liabilities of that sub‑fund.
The explanatory material notes that this approach differs from that adopted under the open ended investment company (OEIC) regime in the United Kingdom, where sub‑funds must have separate legal personality for winding up purposes only and the wind-up provisions apply directly to each sub-fund.
A winding up procedure for one sub‑fund has no legal effect on the other sub‑funds.
The Tranche 2 Exposure Draft Bill proposes the following modifications to the provisions relating to statutory demands:
- A creditor serving a statutory demand on a CCIV does not need to specify a particular sub-fund in the demand. The onus would be on the CCIV to identify the relevant sub‑fund because "this ensures that creditors who may be unable to identify the relevant sub‑fund are not disadvantaged and recognises that the CCIV is best placed to identify the sub‑fund to which a liability has been allocated".
- If a CCIV applies to the Court to set aside a statutory demand disputing the existence of the debt, it need not identify the sub-fund.
- If a CCIV applies to the Court to set aside a statutory demand disputing the amount of the debt:
- It must file a written notice identifying the relevant sub-fund, otherwise the Court will dismiss the application.
- If such a notice has been filed:
- the statutory demand is taken to be a separate statutory demand served on the CCIV in respect of each sub‑fund or sub‑funds identified in the notice;
- the CCIV is taken to have applied to the Court for an order setting aside each of those statutory demands; and
- the Court must then consider the separating assumptions when determining whether to set aside the statutory demand.
Voluntary winding up
As per the separating assumptions, a CCIV may only be voluntarily wound up in respect of its sub‑funds. The corporate director is only required to call a meeting of the affected sub‑fund and notify the members of the sub‑fund of the proposed resolution, rather than calling a meeting of the CCIV. However, a resolution for winding up cannot be passed if an application for the CCIV to be wound up in insolvency has been filed. This prohibition applies irrespective of which sub‑fund is likely to be wound up pursuant to the application.
The liquidator's powers and functions are limited to the sub-fund being wound up. These powers extend to carrying on the sub-fund's business and holding the assets of the sub-fund. The corporate director remains responsible for any determinations that need to be made with respect to the allocation of assets and liabilities to the sub-fund.
Other external administration procedures
Rules for receivership and schemes of arrangement are still under development. These rules will apply the provisions relating to receivership and schemes of arrangement separately for each sub‑fund, along similar lines to the approach for winding up.
Rules for deregistration of sub-funds and CCIVs are also under development.
Financial services and disclosure regimes
The Bill introduces two new categories of financial service:
- operating the business and conducting the affairs of the CCIV (Corporate Director Services); and
- acting as a depositary of a CCIV (Depositary Services).
Whilst a CCIV itself will be exempt from the requirement to hold an Australian Financial Services Licence (AFSL), its corporate director will be required to hold an AFSL for the Corporate Director Services and, likewise, depositaries will need to be licensed to provide Depositary Services. Corporate directors will still be able to provide financial services which are unrelated to the Corporate Director Services.
For the purposes of Chapter 7 of the Act, any action undertaken by a CCIV relating to a financial service or financial services business is deemed to also be undertaken by its corporate director.
The issue of shares and debentures in a CCIV would ordinarily be subject to the prospectus regime in the Act; however, the proposed modifications to Part 7.9 will mean that a PDS, rather than a prospectus, will need to be given to retail clients who acquire a security in a CCIV, aligning the disclosure arrangements with those that apply to registered schemes.
CCIV PDS's will be subject to the same content requirements that ordinarily apply to PDSs for other financial products and (similar to existing exclusions) a PDS will not be required in situations such as small scale offerings, rights issues and issues to persons associated with the CCIV.
There are detailed rules prescribing the circumstances in which conduct of the corporate director, or of employees, directors or agents of the corporate director, are attributed to the CCIV for the purposes of the liability framework. Separate attribution rules apply in relation to Chapter 7 of the Act.
So that members of a CCIV do not suffer loss as a result of an offence or contravention of the law by a CCIV, the proposed framework provides that the corporate director of that CCIV is responsible for any contravention, and is taken to have committed any offence or contravened the civil penalty provision instead of the CCIV.
UCITS funds and OEICs are not subject to the requirements and regulations regarding takeovers in their corresponding jurisdictions. Likewise, under the proposed amendments to the Act, holders of interests in CCIVs would not have to comply with the takeover, compulsory acquisition and buy-out provisions in Chapters 6 to 6C of the Act in relation to acquiring voting power in a CCIV.
However, CCIVs will still need to comply with Chapters 6 to 6C when seeking to acquire control or voting power in an entity regulated by those chapters.
Consultation on the Tranche 2 Exposure Bill closes on 10 August 2018.
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