Australia: Government Releases Third Tranche Of Revised CCIV Bill

Background 

On 12 October 2018, the Federal Government released the third tranche of the revised Corporate Collective Investment Vehicle (CCIV) Bill (Tranche 3 Exposure Bill) for public consultation.  This follows the release of the first tranche on 13 June 2018 and the second tranche on 19 July 2018. In our previous Alert we outlined some of the key features of CCIVs.

The Tranche 3 Exposure Bill proposes further provisions concerning:

  • the independence requirements for the depositary;
  • external administration and insolvency;
  • deregistration of sub-funds and CCIVs; and
  • the application of the takeover and disclosure regimes.

Depositary independence

A CCIV depositary, any entity performing depositary functions and their related bodies corporate will be required to be independent from entities that direct a CCIV's investment decisions. This independence will be subject to three tests, the failure to satisfy any of which will result in a depositary failing to meet the independence requirement:

  • a structural independence test – any entity performing depositary functions must not direct investment decisions for the CCIV;
  • a voting/control test – a CCIV and any of its related bodies corporate must not have more than 20% of the voting power in the depositary (or any entity that performs depository functions and
  • an independent director test – which requires at least one director of an entity performing depositary functions to not be a director of an entity directing investment decisions for the relevant CCIV.

External administration of CCIVs

The Tranche 3 Exposure Bill proposes to apply the external administration framework in Chapter 5 of the Corporations Act (Act) on a sub-fund by sub-fund basis, using a series of 'translation rules' which, at a general level, replace various references in that chapter to their sub-fund specific equivalents. 

The Tranche 3 Exposure Bill and explanatory materials also propose a number of specific changes, including:

  • arrangements and reconstructions – sub-funds will be able to be rearranged within a CCIV or transferred between CCIVs;
  • receiverships – where an asset has been allocated to more than one sub-fund, receivers will be taken to be appointed to each sub-fund separately;
  • winding up:
    • a statutory demand served on a CCIV must now specify the name of the sub-funds to which the debt relates and the proportion of the debt that relates to each sub-fund, and creditors may seek information from the corporate director about these matters (the second tranche had proposed that a creditor did not need to specify these matters in the demand);
    • only sub-funds, not CCIVs, can be wound up; and
    • liquidators will be appointed to sub-funds, during which time the corporate director will not be able to exercise functions or powers that relate solely to a sub-fund which is being wound up.

An exception to the translation rules will apply in relation to the duty to prevent insolvent trading, which will continue to apply to the natural person directors of a CCIV's corporate director. Similarly, the offence of fraud by a company's officers and the power to summon a person for public examination pursuant to section 596A of the Act will apply to the natural person directors of a CCIV's corporate director.

Deregistration of CCIVs

The Tranche 3 Exposure Bill provides for the deregistration regime in relation to CCIVs. 

The proposed regime includes:

  • voluntary deregistration of a sub-fund where that sub-fund no longer has any assets or liabilities and is not a party to any legal proceedings;
  • ASIC initiated and court-ordered sub-fund deregistration;
  • automatic deregistration of a CCIV where it no longer has any registered sub-funds; and
  • reinstatement of deregistered CCIVs and sub-funds.

Takeovers and fundraising

Under the proposed amendments to the Act, holders of interests in CCIVs would not have to comply with the takeover, compulsory acquisition and buy-out provisions in Chapters 6 to 6C of the Act as those interests will be prohibited from being listed. The corollary to this is that the Takeovers Panel will have no jurisdiction to declare 'unacceptable circumstances' in relation to the affairs of a CCIV.

Nonetheless, CCIVs will still need to comply with Chapters 6 to 6C when seeking to acquire control or voting power in an entity regulated by those chapters (e.g. where a CCIV is a bidder in a takeover process).

Whilst a CCIV cannot be listed, the continuous disclosure requirements in Chapter 6CA will apply to CCIVs that are 'disclosing entities', aligning the disclosure requirements with those for managed investment schemes.

Further aligning the disclosure regimes, CCIVs will be subject to disclosure in accordance with the PDS framework and will therefore be excluded from the disclosure and fundraising rules in Chapter 6D.

Finally, a person will be prohibited from offering securities in a CCIV that does not exist, or a sub-fund that is not established, even if it is proposed to incorporate the CCIV or register the sub-fund.

Other amendments

The Tranche 3 Exposure Bill proposes a number of other minor, miscellaneous and technical amendments, including provisions enabling a sub-fund of a retail CCIV to become an Australian passport fund under the Asia Region Funds Passport, which is scheduled to launch in February 2019.

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