Responsible Entities may find their scheme constitutions
do not confer powers for in specie distributions.
In the recent decision of the High Court, Wellington
Capital Ltd v ASIC & Anor  HCA 43, it was held that a
Responsible Entity could not make an in specie distribution to
members because the constitution of the managed investment scheme
did not specifically confer this power.
The case is a reminder to Responsible Entities (RE) on the
importance of constitutional drafting.
Constitutional provisions are interpreted against the context of
the Scheme Constitution as a whole, and general constitutional
provisions granting broad powers may be insufficient to grant an RE
power to conduct in specie distributions (transfer of scheme
property rather than by sale of property and distribution of
proceeds) to members.
Wellington Capital Ltd was a responsible entity that operated a
managed investment scheme. In 2012 Wellington distributed the
assets of the managed investment scheme to Asset Resolution Ltd
(ARL), in return for a share issue in ARL. Wellington then
transferred the shares in ARL to scheme members. ASIC commenced
proceedings at the Federal Court to challenge the validity of the
transfer. The case eventually went to the High Court.
Before the High Court, Wellington tried to justify the transfer
based on two key provisions of its scheme constitution:
The RE has "all powers in respect of the scheme that is
legally possible for a natural person or corporation to have and as
though it were the absolute owner of the Scheme property and acting
in its personal capacity" (cl.13.1)
The RE has the power to "acquire, dispose of, exchange,
mortgage, sub-mortgage, lease, sub-lease, let, grant, release or
vary any right or easement or otherwise deal with Scheme property,
as if the RE were the absolute and beneficial owner." (cl.
It was argued that cl. 13.1 and 13.2.5 gave the RE the power to
make an in specie transfer of shares to scheme members.
This was unanimously rejected. The High Court held that the
power conferred by both cl. 13.1 and cl. 13.2.5 had to be read in
the context of the Constitution as a whole, and the Corporations
Act. Doing so, the majority found the clauses were designed to give
the RE the power to deal with scheme property in dealings with
third parties – not members. By contrast, other provisions in
the Constitution specifically allowed scheme property to be
returned to members by income distribution and by winding up,
respectively. The constitution did not have a specific
constitutional provision allowing in specie transfers.
Hence the power did not extend to the RE's relationship with
Scheme members, and Wellington had acted beyond power:
"The conferral upon the responsible entity of power to act
'as though' it was the absolute owner of the property
facilitated extramural dealings, which might have been by way of
sale, purchase of property or investment of Scheme funds. It did
not authorise the responsible entity to undertake intramural
dealings involving non-consensual transfers of Scheme property to
In earlier proceedings in the Full
Federal Court Wellington had argued that because cl. 13.1
conferred "all powers" of a corporation upon the RE, it
had the powers of a company under section 124 of the Corporations
Act, which included the power to make an in specie distribution of
company property to members. This was rejected by the Full Federal
Court on the basis that the statutory definition of
"member" varies between that of a company and that of a
Managed Investment Scheme. Although the High Court did not consider
this issue, it indicated its agreement with this conclusion.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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