360 Capital Re Ltd v Watts

The appeal concerns a challenge to changes proposed to the constitution of a managed investment scheme, 360 Capital Re Ltd, by Watts, a member of the scheme. The appeal was dismissed by the Supreme Court of Victoria, and the decision was subsequently appealed to the Court of Appeal of the Supreme Court of Victoria. The central issue in this case was whether the proposed changes to the scheme's constitution adversely affected the rights of the members rather than simply their commercial interests. This determination was necessary to assess whether the board of the responsible entity had adequately considered whether the proposed changes would negatively impact the members' rights, as required by section 601GC of the Corporations Act 2001 (Cth). The court had to determine whether the board's reliance on legal advice was sufficient to meet this requirement.

The court found that the proposed changes, which included removing or altering provisions precluding the issue of units at less than $1.00 per unit, issuing options, and restricting the ability of members to convene and conduct meetings, did not adversely affect the members' rights. The court emphasised that the board's decision-making process must be based on a proper consideration of the potential impact on members' rights, rather than merely acting on legal advice. The court followed the decision in Premium Income Fund Action Group Inc v Wellington Capital Ltd and distinguished Re Centro Retail Ltd and ING Funds Management Ltd v ANZ Nominees Ltd, concluding that the board had sufficiently considered the impact of the proposed changes on the members' rights. The appeal was dismissed, and the lower court's decision was upheld.

The court's decision underscores the importance of the board of a responsible entity thoroughly evaluating the implications of proposed constitutional changes on members' rights, rather than relying solely on legal advice. The outcome highlights the need for responsible entities to balance their commercial interests with the rights of scheme members when making decisions that may affect the scheme's constitution. The dismissal of the appeal affirms the lower court's ruling that the proposed changes did not adversely affect the members' rights, and the decision of the board to approve the changes was justified.