Australia: Basis Capital Funds Management V Bt Portfolio Services Limited

Last Updated: 4 February 2009
Article by Peter Charteris

Some of the issues that can arise when there is substantial market volatility have been considered in Basis Capital Funds Management v BT Portfolio Services Limited (2008) NSWSC 766 (28 July 2008).

This case also involved consideration of a number of the financial services provisions in Chapter 7 of the Corporations Act 2001 (Cth). Although the case concerned a managed investment scheme, the issues considered have relevance for a superannuation fund.

The case considered:

  • The nature of the interest acquired when application moneys are received and when the relevant interest was issued on an application for new units in a managed investment scheme.
  • The dealing with money obligations in section 1017E.
  • Redemptions - whether the trustee had the ability to defer and apply a different price after the date for redemption in the trust deed had arrived.
  • Whether the Chapter 5C liquidity provisions of the Corporations Act applied.

Nature of interest acquired on application for an interest

The Court went through the steps that were involved in the issuing of units by the trustee of a unit trust. At the time of receipt of money there is a contractual right to the issue but no issue of the interest. The application had to be processed - the contractual right to the interest was itself a financial product in terms of section 761E.

Both the contract to issue the interest and the issue of interest were financial products in terms of the definition 'financial product' in Chapter 7 of the Corporations Act.

Apart from statutory provisions as to return, once the interest in the trust was issued, the application moneys became part of the trust fund and any rights are that of a unit holder rather than a contractual right to issue of units.

The equivalent provision in section 761E(3), in the case of superannuation funds, is the issue of an interest to a member. Member is not defined and, accordingly, the meaning of member in the trust deed would be relevant. So, in the case of a superannuation fund, it is the time when the person becomes a member. This requires an analysis of the deed. If silent, it is presumably when entered as a member in the records of the fund.

There may also be a contractual right to issue the interest. This will depend on the circumstances of the application - an individual application in response to a PDS may well constitute a contract. However, it will often be the case that the employer enrols under an employer sponsor arrangement that has no contractual force - no deed - and therefore no consideration moves to the employee from the trustee.

Section 763B could apply - the payer intends the recipient to use the money for investment. So, the process prior to the issue of the superannuation interest raises the possibility of an intermediate financial product.

Statutory right of return

Section 1017E imposes on the issuer a statutory return obligation. It applies to the interest for which the money is paid, not the contractual (or other) right to acquire the interest.

Section 1017E was held to require return within 30 days unless it is not reasonably practicable to do so. Justice Austin looked at the dictionary meaning of 'practicable' - 'capable of being put into practice, done or effected, especially with the available means or with reasonable prudence: feasible'. It was not the case that it was at the discretion of the user. It was a question of whether it was physically possible.

This is relevant in the context of contributions to meet superannuation guarantee (SG). That is, whether time can be extended where the employer fails to provide sufficient information to enable the interest to be issued, but at the same time would not be expecting a return in circumstances giving rise to an SG liability. It will be physically possible to return the contribution, but the payer would not regard it as being reasonable to thereby impose such an unexpected liability on the payer by so doing.

While it is physically possible to return the contribution, to do so would not be to exercise reasonable prudence as far as the payer is concerned. The payer has not been given an opportunity to avoid the tax liability that will arise from return.

It is arguable that circumstances in which the payer made the payment can be examined. Convenience of the issuer clearly cannot.

Trustees need to review their procedures as to when issue occurs to identify when section 1017E applies.

Switching procedures - redemption

Freezing of redemptions cannot be applied once the date for redemption has arrived.

In terms of the trust deed, the right of redemption had crystallised - the rights transmuted from that of a unit holder to that of a creditor.

Justice Austin also held it would not be fair in terms of any obligations under section 601GA(4) of the Corporations Act to permit suspension after the obligation to redeem had arrived.

SIS equivalent to section 601GA(4) is section 52(2)(c)

Trust deeds, to allow a deferral or suspension after the date for payment has arrived, need terms that allow deferral of the payment date.

Redemption also needs to be in terms set out in the deed. Once the time for redemption arrives, the member becomes a creditor with a right to be paid the redemption amount. It is not clear how this applies to a superannuation fund. Arguably a person does not cease to be a member until payment of benefit has been made.

It is also relevant for switching from one investment to another within the fund - the right to switch arises at a point in time as determined by the terms of the fund.

One unit holder had requested withdrawal and the trustee agreed to withdraw their request. It was held the unit holder could by agreement with the trustee withdraw that request.

The trustee in Basis Capital claimed the fund was not liquid and so it could freeze. Section 601KA(2) of the Corporations Act only meant it was not liquid where assets could not be realised within the redemption period at market value (section 601KA(6)). This had no application where there had been a dramatic fall in market value. Assets could be realised at market value, it was just this reduced market value was considered too low.

The equivalent SIS provisions should give the opposite result. Regulation 6.34(7) of SIS provides for the freezing of redemption and transfer where investment is illiquid in terms of Regulation 6.31(1). The test is that it cannot be converted to cash in the redemption time, or conversion would have a significant adverse impact on the realisable value of the investment.

This should result in the opposite outcome, as the readily realisable market value can have a significant adverse impact on value.


Trust deed terms need to provide sufficient flexibility to deal with market volatility and pricing errors.

Each stage in each transaction needs to be analysed, and the terms of the trust deed must permit rights sufficient to allow the trustee to react as it considers appropriate. In addition, appropriate policies and disclosure are required.

Disclosure needs to be appropriate.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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”

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions