New financial requirements - all responsible
As foreshadowed in Australian Securities and Investments Commission
(ASIC) Class Order 11/1140 released in November 2011, new financial
requirements applying to all responsible entities have now come
ASIC updated and clarified the financial requirements that will
apply to responsible entities in Class Order 12/1295, which was
issued on 25 September 2012.
In summary, the new financial requirements mean that responsible
entities must now:
Meet increased net tangible assets (NTA) requirements
Hold more of their NTA in cash or cash-equivalent assets
Prepare more robust cash flow forecasts.
Increased NTA requirements
A responsible entity must now hold at all times NTA equal to the
If scheme property is held through an eligible custody
arrangement or the responsible entity does not operate a registered
scheme although it is authorised to do so:
0.5% of the average value of scheme property capped to $5
10% 'average responsible entity revenue'; or
In all other cases:
$5 million; or
10% of 'average RE revenue'.
The changes means that a responsible entity with 'average
responsible entity revenue' (which is defined broadly but has
been clarified in Class Order 12/1295) of more than $50 million
will face an increased NTA requirement.
The calculation of components of NTA have also been clarified by
Class Order 12/1295.
NTA liquidity requirements
Responsible entities must now hold at all times:
In 'cash or cash equivalents', the greater of:
50% of the amount of the NTA requirement calculated above
(assuming an eligible custody arrangement is in place); and
In 'liquid assets', the amount of the NTA requirement
calculated above (assuming an eligible custody arrangement is in
Cash flow projections
The responsible entity will be required to prepare and update
12-month rolling cash flow projections and have the projections
approved by the board of the responsible entity at least
Responsible entities must also obtain an auditor's certificate
that each of the above financial requirements have been met each
financial year or as required by ASIC.
The Australian Securities and Investments Commission (ASIC) has
indicated that it may grant relief from the new financial
requirements on a case-by-case basis for 12 months if extenuating
circumstances are demonstrated.
New disclosure requirements
Responsible entities should be aware that disclosure requirements
relating to unlisted property schemes have also taken effect.
As contained in ASIC Regulatory Guide 46, ASIC has introduced a
new benchmark model of disclosure and updated the disclosure
All new Product Disclosure Statements must contain the new
disclosure requirements. Responsible entities must also ensure
disclosure of benchmarks and disclosure principles are updated in
existing Product Disclosure Statements that remain in use after 1
Existing investors must also be provided with ongoing
disclosure, which complies with the new disclosure requirements in
Regulatory Guide 46.
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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