If you operate a registered managed investment scheme (MIS) or intend to register a MIS, you need to know that:
- there are new content requirements for scheme constitutions lodged from 1 October 2013 (under ASIC Regulatory Guide 134 and related class orders), and
- the decision in ASIC v Wellington Capital1 reviewed the powers of responsible entities and will affect in specie distributions under the scheme constitution.
New requirements for MIS constitutions lodged from 1 October 2013
ASIC recently updated its guidance on the content requirements (contained in sections 601GA and 601GB of the Corporations Act 2001(Cth) (Corporations Act)) for constitutions of registered MISs. The new requirements will apply to constitutions lodged for scheme registration from 1 October 2013.
Responsible entities are not required to amend their current constitutions to comply with the revised guidance (provided that they comply with previous guidelines).
The below table outlines ASIC's new guidelines on constitution content requirements. The complete updated ASIC Regulatory Guide 134 (RG 134) can be accessed here.
|Consideration to acquire an interest in a scheme||ASIC has provided model "safe harbour" provisions, which will meet the content requirements. Alternatively, responsible entities may draft their own provisions, provided they meet the requirements under Class Order [CO 13/655].|
|Power and rights of the responsible entity, including its rights to be paid fees and rights to be indemnified from scheme assets||
ASIC has confirmed that the constitution does not need to expressly identify a fixed fee that will be paid by members. ASIC has provided further guidance regarding the:
|Complaints handling procedures for retail and wholesale clients||
For retail clients, responsible entities may comply with the content requirements for complaints handling by referring to section 912A(2)(a) of the Corporations Act.
If the scheme is open to wholesale clients, ASIC confirms that the responsible entity can devise its own complaints handling procedures. The constitution should include provisions about the procedures.
|Withdrawal rights||Content requirements to disclose withdrawal rights and processes properly.|
|Winding up||Content requirements to disclose winding up processes properly. ASIC has also confirmed that the constitution must include a provision that provides for an independent audit of the final accounts after the winding up of a scheme.|
|Legal enforceability||Content requirements to ensure that a constitution is legally enforceable between the responsible entity and the scheme's members.|
ASIC has also released the following new class orders in conjunction with the updated RG 134:
- [CO 13/655] provisions about the amount of consideration to acquire interests and withdrawal amounts not covered by [CO 05/26]
- [CO 13/656] equality of treatment impacting on the acquisition of interests, and
- [CO 13/657] discretions affecting the amount of consideration to acquire interests and withdrawal amounts.
In specie distributions – decision of ASIC v Wellington Capital Limited
The Full Court of the Australian Federal Court has ruled that responsible entities cannot rely on broad general powers under a scheme's constitution to effect an in specie distribution of scheme property to unit holders. An in specie distribution involves the transfer of fund assets in their actual form to unit holders, rather than selling the assets to a third party and distributing the cash proceeds to unit holders.
In ASIC v Wellington Capital Ltd, the Federal Court held that the in specie transfer of shares in Asset Resolution Limited from Wellington Capital Limited (Wellington), as responsible entity of the Premium Income Fund (Fund), to the unit holders of the Fund was beyond the power of Wellington under the Fund's constitution. To make the in specie distribution, Wellington purported to rely on its broad powers which included "all the powers...that [it] is legally possible for a natural person or corporation to have and as though it where [sic] the absolute owner of the scheme property and acting in its personal capacity"2.
What does this mean?
Trustees should review their constitutions to ensure that they have an express power to distribute assets in specie, rather than an obligation to realise assets for cash prior to distributions of income or capital.
The decision also casts some doubt as to what actions fall within a responsible entity's general powers and what powers are beyond the scope of such a clause's operation and must, therefore, be expressly included into the scheme's constitution.
Our Funds and Financial Services team can assist with reviewing, updating and redrafting your scheme's constitution to ensure that it complies with these new requirements. We have extensive experience and expertise advising on Chapter 5C and Chapter 7 of the Corporations Act and assisting clients to establish funds, including property funds, equity trusts, mortgage funds, cash management trusts, fixed interest trusts, trusts with infrastructure assets, private equity funds and hedge funds. We also help clients to implement compliance and governance systems and procedures to meet their obligations.
1Ltd  FCAFC 52 (28 May 2013)
2Ibid at 34
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.