Australia: What are my Obligations as Responsible Entity of an Insolvent Scheme?

Last Updated: 1 December 2010
Article by Nicole Tyson

The collapse of several high profile managed investment schemes including Trio Capital and Rubicon Asset Management, have resulted in a series of Court rulings on the liquidation of schemes. Whilst these cases provide useful guidance on the mechanism of winding up schemes, they also highlight the onerous responsibilities imposed on responsible entities (REs) of an insolvent scheme.

Regulation of Managed Investment Schemes

A managed investment scheme involves:

  • members contributing money to acquire rights or benefits produced by the scheme;
  • contributions being pooled towards a common enterprise; and
  • members relinquishing day to day control of the scheme (refer section 9 Corporations Act for precise definition).

Chapter 5C of the Corporations Act requires managed investment schemes with more than 20 members to be registered and operated by an RE. The RE must be a public company holding an AFSL licence. The conditions of that licence usually include that the RE hold net assets of a minimum value. Schemes are otherwise governed by their constitutions and Chapter 5C generally.

How can a Managed Investment Scheme be wound up?

Where the scheme does not achieve its purpose or objective, the RE may wind up the scheme, and has power to do so under section 601NC Corporations Act. Similar powers may be granted by the scheme constitution. Members may also seek a winding up, either through powers in the constitution or by calling a members' meeting and passing a resolution.

These provisions will be well known to companies undertaking the role of RE. The majority of recent cases concerning the winding up of schemes have been generated however under section 601ND of the Corporations Act, which permits the Court (Supreme or Federal) to wind up a scheme if it considers it just and equitable, on the application of the RE, a member, ASIC or a creditor.

Recent cases have made clear that "just and equitable" grounds will include the scheme being insolvent. The Courts have highlighted that winding up scheme is different to winding up a company. Winding up a scheme involves liquidating a trust, not a company. The usual provisions of the Corporations Act applicable to companies do not apply – guidance must instead be obtained by the constitution of the scheme (typically the trust deed), and from the Courts.

This has necessitated many applications for directions to Courts as to how a particular scheme should be wound up. In most applications the RE itself has also been insolvent and the application is often made by the liquidator/receiver/administrator of the RE. For example, in Rubicon Asset Management, administrators appointed to an RE obtained orders to wind up insolvent schemes operated by the RE. A similar position applied in Trio Capital.

What happens when the RE is solvent but the scheme is insolvent?

It is important to distinguish between the RE and the Scheme. The RE is the legal body that incurs debts on behalf of (and as trustee of) the scheme. Most cases considered by Courts have concerned an insolvent RE and insolvent scheme.

It is possible however that the RE responsible for administering the scheme could be solvent where the scheme is not. This is particularly where corporate REs provide RE facilities to multiple schemes and only incur debts to external creditors on the basis that the RE's liability is limited to its actual recoveries from scheme assets. The following issues could arise:

(a) Whether the RE has a responsibility to wind up an insolvent scheme. Chapter 5C does not deal specifically with this issue, which should be addressed in the scheme constitution. If the constitution is silent, the answer is probably yes, i.e. the RE probably does have an obligation to wind up, based on commentary of Justice McDougall in the recent decision of Rubicon Asset Management. The fact that a Court could order the RE to wind up the scheme (including on another party's application) reinforces that REs should factor that obligation when accepting the initial appointment as RE;

(b) If the scheme assets are insufficient to pay for the costs of the winding up, will the RE be obliged to use its own assets to do so? In Rubicon (which involved an insolvent RE), the administrators of the RE obtained orders permitting the RE to use its own assets to wind up the scheme. The Court said that if Rubicon were solvent, it would be obliged to use its own money to wind up the schemes if necessary. This was consistent with the RE's obligation in that case to hold at least $5,000,000 in tangible assets as a condition of its AFSL licence.

Lessons and Guidance for Responsible Entities

The Rubicon decision illustrates the obligations taken on by companies acting as REs of one or more schemes. The prospective RE should assume that if the scheme does become insolvent, the RE may need to use its own funds to wind it up. This is usually an expensive process, often costing hundreds of thousands of dollars. REs should factor this prospective liability into their risk assessment when taking appointments at the outset.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.