ASIC Class Order [CO 03/104]

Overview

The ASIC Class Order [CO 03/104], which was enacted in 2003, operates under section 601QA(1)(a) of the Corporations Act 2001. This legislation was introduced to provide relief to responsible entities of registered managed investment schemes that are time-sharing schemes, specifically to facilitate the acquisition and sale of forfeited interests. The policy objective is to ensure that the forfeiture and subsequent sale of interests in time-sharing schemes are handled in a manner that is both fair and transparent, with adequate disclosure to prospective purchasers. The Australian Securities and Investments Commission (ASIC) is the enacting body responsible for the administration and enforcement of this Class Order, aiming to protect the interests of members and maintain the integrity of the schemes.

Scope and Application

The ASIC Class Order [CO 03/104], which operates under the Corporations Act 2001, provides relief to responsible entities of registered managed investment schemes that are time-sharing schemes, allowing them to acquire and sell forfeited interests under specific conditions. This class order applies to the responsible entities of these schemes, permitting them to hold forfeited interests that arise from members who fail to meet their financial obligations. The class order delineates the manner in which forfeiture must occur, such as when a member does not pay amounts due to the responsible entity or to a financier for financial accommodation. It further stipulates that the responsible entity must attempt to sell the forfeited interest at either the price shown in the most recent Product Disclosure Statement or at a fair market price if no such statement has been issued in the past 12 months. Proceeds from the sale or exploitation of the forfeited interest must be applied in a prescribed order, beginning with covering the costs of sale or exploitation, followed by other specified payments, and any remaining amount being returned to the defaulting member. The responsible entity is also required to disclose the circumstances and procedures for forfeiture in the Product Disclosure Statement or otherwise in writing. The class order has a Commonwealth jurisdictional reach and does not specify exclusions or exemptions beyond the conditions set out. It may be amended through subordinate instruments, as evidenced by the historical amendments listed in the instrument.

Key Provisions

The ASIC Class Order [CO 03/104] provides specific relief to responsible entities of registered managed investment schemes that are time-sharing schemes. Under paragraph 601QA(1)(a) of the Corporations Act 2001, the Australian Securities and Investments Commission (ASIC) exempts these entities from certain obligations when they acquire and sell forfeited interests in the scheme. This relief applies when the forfeiture results from a member's failure to meet financial obligations, as detailed in Schedule A of the class order. The responsible entity must use reasonable endeavours to sell the forfeited interest at a specified price or, in the absence of a Product Disclosure Statement, at a fair market price. Any proceeds from the sale must be applied in a specific order, beginning with the costs of sale and ending with any remaining amount to be paid to the defaulting member, as outlined in the constitution of the scheme and detailed in Schedule A. The obligations imposed on responsible entities by the class order are primarily focused on the acquisition and sale of forfeited interests. Firstly, the responsible entity must ensure that prospective investors are informed of the circumstances leading to forfeiture and the procedures for dealing with it. This disclosure must be made through a Product Disclosure Statement if one exists, or in writing if it does not. Secondly, the responsible entity must use reasonable endeavours to sell the forfeited interest at the price specified in the most recent Product Disclosure Statement, or at a fair market price if no such statement has been given within the last 12 months. These obligations are set out in Schedule B of the class order. The class order does not explicitly outline specific offences or penalties for non-compliance. However, breaches of the Corporations Act 2001 or the terms of the class order could result in legal consequences. Such consequences may include enforcement actions by ASIC, which could lead to fines, orders for compensation, or other civil remedies. Additionally, persistent or egregious breaches might be subject to criminal penalties under the Corporations Act, depending on the severity of the breach and the intent behind it. The specific penalties would be determined based on the relevant provisions of the Corporations Act, which could include substantial fines and imprisonment for directors or officers found guilty of serious misconduct.