ASIC Class Order [CO 05/566]
Managed investment schemes: perpetuity clauses in scheme constitutions
This instrument has effect under s601QA(1)(b) of the Corporations Act 2001.
This compilation was prepared on 2 October 2009 taking into account amendments up to [CO 09/702]. See the table at the end of this class order.
Prepared by the Australian Securities and Investments Commission.
Australian Securities and Investments Commission
Corporations Act 2001 — Paragraph 601QA(1)(b) — Declaration
Enabling legislation
1. The Australian Securities and Investments Commission makes this declaration under paragraph 601QA(1)(b) of the Corporations Act 2001 (the Act).
Title
2. This instrument is ASIC Class Order [CO 05/566].
Commencement
3. This instrument commences on the date it is registered under the Legislative Instruments Act 2003.
Note: An instrument is registered when it is recorded on the Federal Register of Legislative Instruments (FRLI) in electronic form: see Legislative Instruments Act 2003, s 4 (definition of register ). The FRLI may be accessed at www.frli.gov.au.
Declaration – perpetuity clauses in scheme constitutions
4. Chapter 5C of the Act applies to all persons in relation to an eligible registered scheme as if section 601GC of the Act were modified or varied as follows:
(a) [Deleted]
(b) insert after subsection (1):
“(1AA) The responsible entity may modify the constitution of a registered scheme by removing a termination clause where the responsible entity reasonably considers that:
(a) the clause was included in the constitution to avoid the application of the rules of law relating to perpetuities in relation to the scheme; and
(b) the removal of the clause does not either:
(i) materially change the nature of the scheme; or
(ii) have a materially adverse effect on the interests of members.
Note: By paragraph 601FC(1)(c), the responsible entity must also act in the best interests of the members in exercising this power to remove the termination clause.
(1AB) A responsible entity that makes modifications of the scheme constitution of the kind covered by subsection (1AA) must give each member of the scheme a notice in writing that sets out the reason for, and the effect of, the modifications. The notice must be:
(a) given no later than the date of the giving of the first communication by the responsible entity to all members of the scheme after the date when the modifications are made; and
(b) worded in a clear, concise and effective manner.
(1AC) In subsection (1AA), termination clause means a clause in a scheme’s constitution which has the effect of terminating the scheme at a specified time (for the avoidance of doubt, including a time specified by reference to the life of a person).”.
Interpretation
5. In this instrument:
eligible registered scheme means a registered scheme to which either of the following applies:
(a) the scheme is included in the official list of a prescribed financial market;
(b) the scheme is not included in the official list of a prescribed financial market and its constitution does not make provision for members to withdraw from the scheme.
Notes to ASIC Class Order [CO 05/566]
Note 1
ASIC Class Order [CO 05/566] (in force under s601QA(1)(b) of the Corporations Act 2001) as shown in this compilation comprises that Class Order amended as indicated in the tables below.
Table of Instruments
Instrument number | Date of FRLI registration | Date of commencement | Application, saving or transitional provisions |
[CO 05/566] | 8/6/2005 (see F2005L01432) | 8/6/2005 | |
[CO 09/702] | 23/9/2009 (see F2009L03604) | 23/9/2009 | - |
Table of Amendments
ad. = added or inserted am. = amended rep. = repealed rs. = repealed and substituted
Provision affected | How affected |
Subpara 4(a)....... | rep. [CO 09/702] |
Overview
The ASIC Class Order [CO 05/566], enacted in 2005, was introduced under the Corporations Act 2001 to address the issue of perpetuity clauses in the constitutions of managed investment schemes. This legislative instrument was created by the Australian Securities and Investments Commission (ASIC) to modify the Act, specifically allowing responsible entities to remove termination clauses from a scheme’s constitution where certain conditions are met. The primary policy objective of this class order is to ensure that the removal of perpetuity clauses does not significantly alter the scheme’s nature or adversely affect the interests of the members, while also requiring the responsible entity to communicate these changes effectively to all members. The class order came into effect on the date it was registered under the Legislative Instruments Act 2003, which was 8 June 2005.
Scope and Application
ASIC Class Order [CO 05/566] applies to all persons in relation to an eligible registered scheme under the Corporations Act 2001. An eligible registered scheme is defined as a registered scheme that is either listed on a prescribed financial market or has a constitution that does not allow members to withdraw from the scheme. The Act modifies the rules concerning perpetuity clauses in the constitutions of these schemes, allowing responsible entities to remove such clauses if they were originally included to avoid the application of the rules of law relating to perpetuities, provided that the removal does not materially alter the scheme's nature or adversely affect members' interests. The responsible entity must notify members of the removal in a clear and concise manner. This Class Order commences on the date of its registration under the Legislative Instruments Act 2003 and has been amended by subsequent class orders, such as [CO 09/702], which introduced specific changes to the provisions.
Key Provisions
ASIC Class Order [CO 05/566] provides significant modifications to the Corporations Act 2001, particularly concerning perpetuity clauses in the constitutions of managed investment schemes. Under section 601GC of the Act, the responsible entity of a registered scheme can now remove a termination clause from the scheme’s constitution if it reasonably considers that the clause was included to avoid the application of the rules of law relating to perpetuities and that its removal does not materially change the nature of the scheme or adversely affect members' interests. The responsible entity must then provide written notice to each member of the scheme, explaining the reason for and effect of the modifications, within a specified timeframe and in a clear, concise, and effective manner (subsections 1AA and 1AB). This notice requirement ensures transparency and keeps members adequately informed about changes that could impact their investment.
The Class Order imposes specific obligations on responsible entities of registered schemes. Primarily, these entities must act in the best interests of the members when considering the removal of a termination clause, ensuring that any modifications align with the scheme’s core purpose and do not negatively impact member interests (subsection 1AA). Furthermore, responsible entities must adhere to the notice requirements outlined in subsection 1AB, ensuring that all members are given a clear and concise explanation of the changes and their implications. This requirement ensures that members are fully informed and can make decisions based on complete and understandable information.
Failure to comply with the obligations and requirements set out in ASIC Class Order [CO 05/566] may result in legal consequences. While the Class Order does not explicitly state penalties for non-compliance, breaches of the Corporations Act 2001, from which this Class Order derives its authority, can result in civil or criminal penalties. For instance, responsible entities who fail to provide the required notices to members or make modifications without reasonable consideration of their impact could face civil penalties, including fines. In more severe cases, individuals found to have deliberately breached the Act could face criminal charges, with potential penalties including imprisonment, particularly if the breach is found to be wilful or reckless. These potential penalties underscore the importance of compliance with the Class Order’s provisions.