ASIC CLASS ORDER [CO 10/0830]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes [CO 10/0830] under paragraphs 601QA(1)(b), 926A(2)(a), 992B(1)(a) and 1020F(1)(a) of the Corporations Act 2001 (the Act).
Paragraph 601QA(1)(b) of the Corporations Act 2001 (the Act) provides that the Australian Securities and Investments Commission may declare that Ch 5C of the Act apply to a person as if the provisions were omitted, modified or varied in a certain way.
Paragraph 926A(2)(a) of the Act provides that ASIC may exempt a person from a provision of Pt 7.6 of the Act (other than Divs 4 and 8).
Paragraph 992B(1)(a) of the Act provides that ASIC may exempt a person from a provision of Pt 7.8 of the Act.
Paragraph 1020F(1)(a) of the Act provides that ASIC may exempt a person from a provision of Pt 7.9 of the Act.
Background
On 20 October 2009, the Full Federal Court held in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147 that a funded representative action and solicitors’ retainers for two representative proceedings against Brookfield Multiplex Ltd in the Federal Court were a managed investment scheme that should have been registered for the purposes of the Act.
On 4 May 2010, the Government announced that it would make regulations exempting representative proceedings and proof of debt arrangements from:
(a) the definition of managed investment scheme in s9 of the Act; and
(b) Pts 7.6, 7.7, 7.8 and 7.9 of the Act as long as there are appropriate arrangements in place to manage conflicts of interest.
ASIC executed [CO 10/333] on 5 May 2010. [CO 10/333]:
- provides for Ch 5C to apply as if the definition of a managed investment scheme in s9 of the Act were varied to exclude funded representative proceedings and funded proof of debt arrangements.
- exempts funders, lawyers and their representatives and other persons from the requirements to hold an AFSL or act as an authorised representative of a licensee to provide financial services associated with funded representative proceedings and funded proof of debt arrangements.
- exempts from the requirement comply with the disclosure provisions in Pt 7.9 of the Act in relation to interests in funded representative proceedings and funded proof of debt arrangements.
The relief in [CO 10/333] had effect until 30 September 2010.
Purpose of [CO 10/0830]
[CO 10/0830] will enable the temporary operation of funded representative proceedings and funded proof of debt arrangements without compliance with the requirements of the Act until 1 March 2011. This is to allow additional time for the incoming Government to make a decision about how it wishes to proceed; and for that decision to be implemented.
Operation of [CO 10/0830]
[CO 10/0830] varies [CO 10/333] by replacing 30 September 2010 in paragraph 10 with 1 March 2011.
Consultation
ASIC did not undertake consultation with respect to [CO 10/0830] as it is of a minor and machinery nature, and was required as a matter of urgency to address the operation of the relevant schemes after the expiration of [CO 10/333].
Overview
The ASIC Class Order [CO 10/0830] was enacted in 2010 under the authority of the Corporations Act 2001, with the purpose of addressing the legal complications surrounding funded representative actions and proof of debt arrangements in light of the Full Federal Court's decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd. The Court found that such actions constituted a managed investment scheme that required registration under the Act, a ruling that necessitated urgent regulatory response. The Australian Securities and Investments Commission (ASIC) was tasked with providing a temporary solution, which was initially addressed through [CO 10/333]. However, [CO 10/0830] extends the temporary exemption period until 1 March 2011 to allow the incoming government time to decide on a long-term regulatory approach. This class order was enacted without consultation due to its urgent and administrative nature, ensuring the continuity of funded representative proceedings and proof of debt arrangements under specific conditions.
Scope and Application
The ASIC Class Order [CO 10/0830] applies to persons and entities involved in funded representative proceedings and funded proof of debt arrangements, allowing them to operate temporarily without compliance with certain requirements of the Corporations Act 2001 until 1 March 2011. This includes funders, lawyers, their representatives, and other related parties, providing exemptions from specific provisions such as the definition of a managed investment scheme, and requirements to hold an Australian Financial Services Licence (AFSL) or act as an authorised representative. The geographic reach of this order is national, applying throughout Australia. There are no specific exclusions mentioned in the explanatory statement, but the exemptions are contingent upon appropriate arrangements being in place to manage conflicts of interest. This order extends the relief provided by [CO 10/333], which was initially set to expire on 30 September 2010, to 1 March 2011. ASIC did not undertake consultation for this Class Order due to its minor nature and urgency, necessitated by the expiration of [CO 10/333].
Key Provisions
The ASIC Class Order [CO 10/0830] under the Corporations Act 2001 primarily operates to extend the temporary exemptions for funded representative proceedings and funded proof of debt arrangements. The key sections involved include paragraphs 601QA(1)(b), 926A(2)(a), 992B(1)(a), and 1020F(1)(a) of the Act. These sections allow the Australian Securities and Investments Commission (ASIC) to declare that certain provisions of the Act apply to a person as if they were omitted, modified, or varied. This class order modifies the previous class order [CO 10/333], which had provided temporary relief until 30 September 2010. Section 10 of [CO 10/0830] extends this relief until 1 March 2011 to allow more time for the incoming government to make a decision about the future of these arrangements.
The obligations imposed by [CO 10/0830] on the relevant parties are primarily related to the temporary nature of the exemptions. Funders, lawyers, and other involved parties must ensure that there are appropriate arrangements in place to manage conflicts of interest. Additionally, these parties are exempted from the need to hold an Australian Financial Services Licence (AFSL) or act as an authorised representative of a licensee to provide financial services associated with funded representative proceedings and funded proof of debt arrangements. The class order also exempts these parties from complying with the disclosure provisions in Part 7.9 of the Act concerning interests in funded representative proceedings and funded proof of debt arrangements.
For breaches of the provisions of the Corporations Act 2001, the class order does not specify particular offences or penalties. However, general provisions of the Act apply. Offences under the Act can result in both criminal and civil penalties. Criminal penalties can include substantial fines and imprisonment, while civil penalties can include fines and compensation orders. The maximum penalties can vary significantly depending on the specific offence and the severity of the breach. It is important for parties involved in funded representative proceedings and funded proof of debt arrangements to ensure compliance with all relevant legal requirements to avoid any potential penalties or consequences.