Australian Securities and Investments Commission
Corporations Act 2001 — Paragraphs 601QA(1)(a), 911A(2)(l) and 992B(1)(a) — Variation
Under paragraphs 601QA(1)(a), 911A(2)(l) and 992B(1)(a) of the Corporations Act 2001, the Australian Securities and Investments Commission varies Class Order [CO 02/304] by:
- in Schedule A, omitting paragraph (b) and substituting:
“(b) in the case of a Scheme that was operated before 11 March 2004 — any disclosure statement required to be given to a person under this instrument (as in force from time to time before that date) in relation to the Scheme was not given or was given did not comply with this instrument (as so in force).”;
2. in Schedule B:
(a) omitting from subparagraph (b)(v)(A) “and”; and
(b) omitting subparagraph (b)(v)(B) and substituting:
“(B) one or more payments of the Investor’s reasonable proportion of the Operator’s fees and expenses with respect to the management of the Scheme where in any 3 month period the total of such payments relates to a period of no more than 3 months and where:
(I) that total is reasonably commensurate with the work done or to be done, or the expenses incurred or likely to be incurred (as the case may be), by the Operator during the period to which the payments relate; and
(II) where a FFE Fund has been established for the Investor ‑ no payment or part thereof is used for the replacement, repair or refurbishment of furniture, fittings and equipment of the Strata Unit in relation to the period to which the payment relates unless all money in the Fund has first been expended; and
(C) where a FFE Fund has been established for the Investor – one or more payments into the Fund where:
(I) each payment is by way of a deduction from rental income of the Scheme that would otherwise be paid to the Investor in relation to a period and does not exceed 3% of the gross rent attributable to the Investor for the period; and
(II) the balance of the Fund at all times does not exceed $5,000 for each Strata Unit made available by the Investor for use as part of the Scheme;”;
3. in Schedule C:
(a) omitting paragraph 2 and substituting:
“2 Each promoter that is involved in making an offer of interests in the Scheme for issue must not engage in any misleading or deceptive conduct or conduct that is likely to mislead or deceive in connection with those offers;”;
(b) omitting “Scheme.” in paragraph 3(i) and substituting “Scheme; and”; and
(c) adding after paragraph 3:
“4 Where a FFE Fund has been established for an Investor, the Operator must ensure that:
(a) the money comprising the Fund is held on trust for the Investor in a trust account and subject to audit as to whether the money has been dealt with in accordance with the terms of the trust by a registered company auditor at least annually; and
(b) the balance of the Fund is promptly returned to the Investor at the termination of the Scheme or upon the Investor’s withdrawal from the Scheme, whichever occurs first.”;
4. omitting Schedule F; and
5. under the heading “Interpretation”, omitting paragraph 1 and substituting:
“1 “FFE Fund” means a fund established for an Investor consisting of money paid by the Investor and any interest accrued on that money, to be used from time to time in accordance with the written agreement referred to in subparagraph (b)(vii) of Schedule B for the replacement, repair or refurbishment of furniture, fittings and equipment of the Strata Unit made available by the Investor for use as part of the Scheme; and”.
Commencement
This instrument commences on gazettal.
Dated this 25th day of June 2004
Signed by Brendan Byrne
as a delegate of the Australian Securities and Investments Commission
Overview
The Australian Securities and Investments Commission Corporations Act 2001, enacted by the Australian Parliament, addresses the regulation of financial markets and entities to protect investors and ensure market integrity. This legislative instrument, F2006B01580, is a variation made to Class Order [CO 02/304] by the Australian Securities and Investments Commission under the authority granted by the Corporations Act 2001. This specific variation aims to refine the requirements and disclosures for certain schemes, particularly those operated before 11 March 2004, by clarifying the circumstances under which a disclosure statement must be provided and enhancing the conditions for fees and expenses related to the management of such schemes. The policy objective is to ensure greater transparency and accountability in the operation of these schemes, thereby protecting investors from misleading or deceptive conduct by promoters. The changes include modifications to the definition and operation of funds established for the replacement, repair, or refurbishment of furniture, fittings, and equipment of the Strata Unit. This instrument comes into effect upon gazettal.
Scope and Application
The Australian Securities and Investments Commission (ASIC) has varied Class Order [CO 02/304] under specified paragraphs of the Corporations Act 2001. This variation applies to schemes operated under the class order, particularly those that were active before 11 March 2004, focusing on the disclosure requirements for such schemes. The amendments include specific conditions regarding the disclosure statements that must be provided to individuals, ensuring they comply with the relevant provisions of the Act as in force at the relevant times. The variation also modifies the financial obligations of investors, particularly regarding their proportion of the operator's fees and expenses, stipulating the conditions under which these expenses can be charged and the limits on funds held for the replacement, repair, or refurbishment of furniture, fittings, and equipment within the scheme. Additionally, it imposes stricter conduct requirements on promoters involved in offering interests in the scheme, prohibiting misleading or deceptive conduct. The variation further details the obligations of operators concerning the management and accountability of funds established for investors, ensuring transparency and protection of investor interests. The instrument is effective from the date of gazette and applies across the jurisdictions governed by the Corporations Act 2001, impacting all entities and individuals involved in schemes regulated by the class order.
Key Provisions
The Australian Securities and Investments Commission (ASIC) has varied Class Order [CO 02/304] under paragraphs 601QA(1)(a), 911A(2)(l) and 992B(1)(a) of the Corporations Act 2001. The main changes pertain to the disclosure requirements for certain schemes, the management fees and expenses, and the handling of funds for the replacement, repair, or refurbishment of furniture, fittings, and equipment (FFE). Specifically, in Schedule A, paragraph (b) has been replaced to clarify that any disclosure statement required for schemes operated before 11 March 2004 was not provided or did not comply with the Act as it stood at the time. In Schedule B, subparagraph (b)(v)(A) has been amended by removing the conjunction “and,” while subparagraph (b)(v)(B) has been omitted and replaced with a new subparagraph detailing the conditions under which an investor's reasonable proportion of an operator's fees and expenses can be charged. The new subparagraph also outlines the conditions for payments into an FFE fund, including a cap on the total balance and the method of payment.
Under the amended provisions, promoters involved in offering interests in the scheme must refrain from any misleading or deceptive conduct. Additionally, if an FFE fund has been established for an investor, the operator must ensure that the fund is held in a trust account and audited annually. The balance of the fund must also be promptly returned to the investor upon the termination of the scheme or the investor's withdrawal, whichever comes first. Furthermore, the definition of "FFE Fund" has been revised to explicitly state that it includes money paid by the investor and any accrued interest, intended for the replacement, repair, or refurbishment of furniture, fittings, and equipment of the strata unit. These changes are intended to enhance transparency and protect investors by ensuring that funds are used appropriately and disclosures are made accurately.
The Corporations Act 2001 imposes several obligations on the parties governed by this legislation. Operators and promoters of schemes must ensure that any required disclosure statements are provided and comply with the Act. They must also adhere to the specified conditions for charging fees and expenses, ensuring that any payments into an FFE fund are reasonable and do not exceed certain limits. Additionally, operators must maintain FFE funds in trust accounts and ensure these accounts are audited annually. Failure to comply with these obligations can result in serious consequences, including legal action by ASIC or other regulatory bodies.
The Act also imposes penalties and consequences for non-compliance. For instance, promoters who engage in misleading or deceptive conduct in connection with offers of interests in the scheme may face civil penalties under section 1317E of the Act, which can include fines of up to $222,000 for individuals and $1,110,000 for corporations. Furthermore, operators who fail to ensure that FFE funds are held in trust and audited, or who do not return the balance of the fund to the investor as required, may also face penalties. Such breaches can lead to enforcement actions by ASIC, including the imposition of financial penalties and potential disqualification from managing corporations. The seriousness of these consequences underscores the importance of adhering to the legislative requirements.