ASIC CLASS ORDER 07/0642
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 07/0642] Variation to Class Order [CO 02/315] Time-sharing schemes – use of loose-leaf price list under paragraph 601QA(1)(b) of the Corporations Act 2001 (the Act). Paragraph 601QA(1)(b) of the Act provides that ASIC may declare that Chapter 5C of the Act applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.
1. Background
Paragraph 601GA(1)(a) of the Act requires that the constitution of a registered managed investment scheme makes adequate provision for the consideration that is to be paid to acquire an interest in the scheme.
[CO 02/315]:
(a) modifies paragraph 601GA(1)(a) of the Act to allow promoters and operators of registered time-sharing schemes to specify the acquisition price of time-sharing interests in a prospectus, separate loose-leaf price list or product disclosure statement instead of requiring that the acquisition price be specified in the constitution of the registered time-sharing; and
(b) exempts promoters and operators of registered time-sharing schemes from the requirements in sections 710 and 711 of the Act to specify the acquisition price of time-sharing interests in a prospectus.
ASIC granted relief from paragraph 601GA(1)(a) of the Act and sections 710 and 711 of the Act in [CO 02/315] because the acquisition price of a time-sharing interest is often negotiable and variable. Allowing promoters and operators of registered time-sharing schemes to use a loose-leaf price list to specify the acquisition price facilitates prices being quickly and easily updated.
ASIC has imposed conditions on the relief in [CO 02/315] that are designed to:
(a) protect consumers from the effects of pressure selling tactics; and
(b) assist consumers make an information decision about the costs associated with the purchase of time-sharing interests.
2. The purpose of the class order
[CO 07/0642] effects amendments to [CO 02/315] which are intended to remove the requirement that operators of registered time-sharing schemes give a cooling-off period of 14 calendar days and replace it with a requirement that gives them a choice of giving a cooling-off period of not less than 7 calendar days if they are members of the Australian Timeshare and Holiday Ownership Council and ASIC has not notified them in writing that they cannot continue to give a cooling-off period of 7 calendar days or giving a cooling-off period of not less than 14 calendar days if they are not members of the Australian Timeshare and Holiday Ownership Council.
The change has been made in light of the existence of a Code of Practice bindingmembers of Australian Timeshare and Holiday Ownership Council. That Code of Practice specifically deals with marketing and selling related issues. We considered that compliance with this Code of Practice could reduce the risk of pressure selling such that a lesser cooling-off period is warranted. We will continue to monitor complaints of pressure selling in the time-sharing industry to ensure the proposed relief remains warranted.
3. Consultation
ASIC has received and considered written submissions from various parties, including the Australian Timeshare and Holiday Ownership Council and operators of time-sharing schemes, in relation to whether it should give time-sharing operators and promoters a choice of giving a cooling-off period of not less than 7 calendar days if they are members of the Australian Timeshare and Holiday Ownership Council or giving a cooling-off period of not less than 14 calendar days if they are not members of the Australian Timeshare and Holiday Ownership Council. These submissions were taken into account in the development of [CO 07/0642].
Overview
The ASIC Class Order 07/0642, enacted in 2007, is an amendment to Class Order 02/315 under the Corporations Act 2001. This legislative measure addresses the need for more flexible pricing mechanisms for time-sharing interests, responding to the negotiable and variable nature of such prices. By allowing the specification of acquisition prices through a prospectus, a separate loose-leaf price list, or a product disclosure statement, rather than strictly through the scheme's constitution, the order aims to facilitate easier and quicker updates to these prices. This change was motivated by the recognition that consumers often face negotiable prices in time-sharing transactions, and by the intent to protect consumers from pressure selling tactics while enabling them to make more informed decisions regarding their investments. The policy objective of these changes is to balance flexibility in pricing with consumer protection.
Scope and Application
The Australian Securities and Investments Commission (ASIC) Class Order 07/0642 pertains to the use of loose-leaf price lists for the specification of acquisition prices in registered time-sharing schemes under the Corporations Act 2001. This legislation applies to promoters and operators of registered time-sharing schemes, allowing them to specify the acquisition price of time-sharing interests in a prospectus, separate loose-leaf price list, or product disclosure statement instead of mandating that the price be specified in the scheme's constitution. The order also exempts these entities from the requirements in sections 710 and 711 of the Act concerning the specification of acquisition prices in a prospectus. The geographic and jurisdictional reach of this legislation is within the Commonwealth, as it is an ASIC-issued class order under the Corporations Act 2001. The order amends previous relief granted in Class Order 02/315, reflecting updated considerations around the provision of cooling-off periods and the compliance with the Code of Practice by members of the Australian Timeshare and Holiday Ownership Council. It introduces a choice for operators to provide either a 7 or 14-day cooling-off period, contingent upon their membership in the Australian Timeshare and Holiday Ownership Council and ASIC's notification. The class order does not explicitly state exclusions or thresholds but conditions are imposed to protect consumers and assist them in making informed decisions.
Key Provisions
The ASIC Class Order 07/0642 modifies the existing Class Order 02/315, particularly concerning the use of a loose-leaf price list under section 601QA(1)(b) of the Corporations Act 2001 (the Act). The primary change is to alter the cooling-off period requirements for operators of registered time-sharing schemes. Under the new provisions, these operators can choose between providing a cooling-off period of not less than 7 calendar days if they are members of the Australian Timeshare and Holiday Ownership Council and ASIC has not notified them in writing that they cannot continue with this shorter period, or a cooling-off period of not less than 14 calendar days if they are not members of the Council. This modification aims to reflect the compliance with a Code of Practice that governs marketing and selling practices within the Council, which ASIC believes could mitigate the risk of pressure selling tactics.
The obligations imposed by this Act on parties involved are primarily concerned with ensuring transparency and protecting consumers. Operators of registered time-sharing schemes must specify the acquisition price of time-sharing interests either in the prospectus, a separate loose-leaf price list, or a product disclosure statement, rather than in the scheme's constitution. Furthermore, members of the Australian Timeshare and Holiday Ownership Council must adhere to the Code of Practice, which governs their marketing and selling practices. This includes offering the appropriate cooling-off period to consumers. Non-members of the Council must adhere to the 14-calendar day cooling-off period. These provisions are designed to protect consumers from potentially aggressive sales tactics and to ensure they have adequate time to make informed decisions about purchasing time-sharing interests.
The Act does not explicitly outline criminal or civil penalties for breaches of the Class Order. However, breaches of the Corporations Act 2001, under which these Class Orders operate, can result in significant penalties. For instance, Section 1311 of the Act allows for penalties for contraventions, which can include fines of up to $210,000 for individuals and substantially higher amounts for corporations. Additionally, the Act provides for both criminal and civil penalties, including imprisonment, for serious breaches. Therefore, operators who fail to comply with the cooling-off period requirements or who do not specify the acquisition price correctly may face these substantial penalties. Furthermore, ASIC retains the authority to take enforcement action, including pursuing legal proceedings, against entities or individuals found in breach of the Class Order or the underlying Act.