ASIC CLASS ORDER [CO 07/189]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 07/189] Management rights schemes – relief from registration requirement under paragraph 601QA(1)(a) of the Corporations Act 2001 (the Act).

Paragraph 601QA(1)(a) provides that ASIC may exempt a person from a provision of Chapter 5C of the Act. The exemption may apply to a class of persons: subsection 601QA(2).

1. Background

Class Order [CO 07/189] exempts a person who operates a management rights scheme from the requirement to register the scheme as a managed investment scheme under Chapter 5C of the Act in circumstances where ASIC has issued an instrument that exempts interests in the scheme from certain requirements of Chapter 7 of the Act, in substantially the same terms as ASIC Pro Forma [PF 187] Management rights schemes where the strata unit cannot be used as a residence (PF 187). Individual instruments based on PF 187 are issued by ASIC in relation to specified management rights schemes.

2. Purpose of the class order

The purpose of the class order is to facilitate the execution by ASIC of individual instruments based on PF 187 that are not legislative instruments and are capable of facilitating the transfer of management rights between different operators. It ensures that the policy underlying ASIC’s PF 187 individual instruments continues to have its intended effect. Thus it is purely technical and involves no policy change.

Operation of individual PF 187 instruments before 1 January 2005

Previously PF 187 was issued in a form that exempted persons who were involved in the operation of a management rights scheme from the following obligations that would otherwise apply under the Act:

• the requirement to register a managed investment scheme;
• the requirement to hold an Australian financial services licence;
• the prohibition on hawking of interests in managed investment schemes; and
• the requirement to give confirmation of a transaction.

PF 187 purported to extend relief to “any person who operates” the management rights scheme. The effect of this was that each operator of the scheme from time to time would be covered by the exemption, provided that they complied with its terms. The operation of the relief thus facilitated the transfer of management rights between parties.

Impact of Legislative Instruments Act 2003 (LIA) on individual PF 187 instruments

The Legislative Instruments Act 2003 (LIA) came into force on 1 January 2005. Under the LIA, an instrument that purports to apply to a class of persons is a legislative instrument and must be registered on the Federal Register of Legislative Instruments. An instrument purporting to exempt “any person who operates” a management rights scheme would be a legislative instrument and would therefore need to be registered and tabled before Parliament.

Since the operation of the LIA began and until the re-issue of PF 187 and the execution of Class Order [CO 07/189], ASIC instruments based on PF 187 have only been issued to specified named persons rather than “any person who operates the scheme” to avoid the creation of a legislative instrument. The disadvantage of this approach is that it does not facilitate the transfer of management rights between parties. Each time a different person becomes the operator of the scheme, that person must seek and obtain from ASIC additional relief that specifies the name of that operator.

This imposes an unintended burden on operators of management rights schemes. The class order, together with the revised PF 187, have been issued by ASIC with a view to removing this unintended burden.

3. Operation of the class order

ASIC has re-issued PF 187. Instead of using its powers to exempt a person from the requirements of the Act, ASIC has used its powers under Chapter 7 of the Act to exempt a specified financial product (an interest in the management rights scheme) from Part 7.6 (other than Divisions 4 and 8), which contains the requirement to hold an Australian financial services licence, the prohibition on hawking of interests in managed investment schemes and the requirement to give confirmation of a transaction. An instrument that exempts a specified financial product (rather than a class of products) is not a legislative instrument. In effect, a person who operates the management rights scheme that is the subject of the instrument will not need to be licensed and will not be subject to the hawking prohibition or the confirmation of transactions requirement because those obligations are inapplicable to interests in the scheme.

ASIC does not have the power to exempt a specified financial product from Chapter 5C. The class order has been executed so that the exemption from the requirement to register the scheme that was previously included in PF 187 will apply to any person who operates a management rights scheme that is the subject of an individual instrument of exemption based on PF 187.

As was the case before the LIA commencement, once an individual instrument based on PF 187 has been executed in relation to a particular management rights scheme, any operator of the scheme who complies with the terms of the instruments will have the benefit of relief.

4. Consultation

As the class order was made for purely technical reasons to preserve rather than alter the intended effect of ASIC’s policy relating to management rights schemes, no consultation occurred. Effectively operators of management rights schemes that are the subject of individual relief instruments are now in the same position that they were in before the commencement of the LIA.