ASIC consults regarding managed investment scheme class orders – re removal/equal treatment

Key Takeaway

The following are intended to remain:

  • arrangements for members to vote to remove the RE of a listed, registered MIS (being at a meeting convened by the RE at the request of members, by the members themselves, or by a court); and
  • exemptions from the RE’s duty to treat members equally and fairly (for offers of interests to overseas residents, and in certain other circumstances).

On 21 March 2023, ASIC released Consultation Paper 368 (Remaking ASIC class orders: [CO 13/519] and [CO 13/656]), concerning 2 class orders (“COs”) affecting provisions of the Corporations Act 2001 (Cth) (the “CA”) needing to be remade before they expire on 01 October 2023. ASIC has said that it “considers the class orders are operating effectively and efficiently”, noting that the “fundamental policy principles that underpin the class orders have not changed”.

The relevant COs are CO 13/519 (Changing the responsible entity) and CO 13/656 (Equality of treatment impacting on the acquisition of interests). The Legislation Act 2003 (Cth) requires that all COs expire (or ‘sunset’), so that their regular renewal can enable them to “remain fit for purpose and relevant”.

ASIC’s Consultation Paper proposes no significant changes to the COs (other than to extend their sunset dates to 01 October 2028), but seeks feedback as to whether interested parties agree with this proposal (and if not, why not) or are aware of any significant issues with the operation of the COs.

Proposed ASIC Corporations (Changing the Responsible Entity) Instrument 2023

CA Chapter 5C provides the framework for regulation of managed investment schemes (“MISs”), in which CA section 601FM outlines the process of removing the responsible entity (“RE”) of a registered MIS by vote of the members, with subsection (1) stipulating that “If members of a registered scheme want to remove the responsible entity, they may take action… for the calling of a members’ meeting to consider and vote on a resolution that the current responsible entity should be removed …”, and that the vote must be passed by an extraordinary resolution (in this case, >50%) if the MIS is not ASX-listed.

CO 13/519 amends this provision for registered MISs that are ASX-listed, by inserting a subsection (1A), which provides that: the RE must convene a vote to remove the RE on the request of either members holding at least 5% of the votes able to be cast, or at least 100 members entitled to vote; members holding at least 5% of the votes can convene the meeting themselves; and a court may order the meeting to be called, if it is impracticable to do so in any other way.

Proposed ASIC Corporations (Equality of Treatment Impacting on the Acquisition of Scheme Interests and CCIV Shares) Instrument 2023

CA section 601FC details the duties of a RE, including (in subsection (1)(d)) that the RE must “treat members who hold interests of the same class equally and members who hold interests of different classes fairly”.

CO 13/656 provides 4 exemptions from this ‘equal treatment’ obligation:

  • The first exemption is in relation to offers to non-residents of Australia or New Zealand, of interests in registered MISs:
    • where the scheme is ASX-listed, and Rule 7.7 (Issues to Australian and New Zealand holders and overseas holders) applies, provided that the RE complies with that rule in relation to the offer; or
    • where the scheme is not ASX-listed, but the offers are renounceable, and the RE appoints a nominee to acquire the interests which are not offered to such non-residents and distributes the proceeds to them; or
    • otherwise, where the RE determines that it would be unreasonable to make the offer, having regard to: the number of members in the place of the non-resident; the number and value of the interests; and the cost of complying with the legal and regulatory requirements in that place.
  • The second exemption from ‘equal treatment’ is for offering interests to wholesale clients (‘priority offerees’) earlier than other members, where the priority offerees must notify their acceptance of the offer, but the interests are not actually issued to them, before others.
  • The third exemption applies to dealing with complaints from members who are wholesale clients differently from complaints by other members.
  • The fourth exemption is for offering and issuing interests in accordance with ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 (which essentially provides a framework for ‘purchase plans’ allowing existing members to obtain additional interests, at a discounted price and without brokerage fees, and without a regulated disclosure document).

The CO also provides similar exemptions from equivalent ‘equal treatment’ obligations under CA section 1224D(2)(b), regarding the duties of directors of corporate collective investment vehicles.

Lastly, the CO allows an RE to acquire forfeited interests on trust for members (without providing equal treatment to members) if the scheme constitution requires that the sale of these interests be in accordance with CA section 601GAD(9) (being for not less than the consideration payable by others, and subject to terms not disadvantaging other members).

Looking Forward

ASIC is inviting submissions in response to its Consultation Paper, which are due by 11 April 2023.

This article was written by Jack Fitzgerald (Paralegal), Venn King (Principal Solicitor), and Natalie Cambrell (Director). 

Venn King Principal Solicitor

Venn King is a Principal Solicitor in KHQ’s Corporate & Commercial team.

Venn utilises his broad corporate and finance experience in the context of complex investment structuring transactions... Read More

KHQ Lawyers - Natalie Cambrell

Natalie Cambrell Director

Natalie leads our Superannuation & Financial Services team. With more than 25 years’ experience, she has an enviable reputation for her in-depth knowledge in these highly regulated and complex... Read More