ASIC CLASS ORDER [CO 11/128]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes [CO 11/128] 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 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 a litigation funding scheme and a proof of debt funding scheme.
- 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 a litigation funding scheme and a proof of debt funding scheme.
- exempts from the requirement comply with the disclosure provisions in Pt 7.9 of the Act in relation to interests in a litigation funding scheme and a proof of debt funding scheme.
The relief in [CO 10/333] originally had effect until 30 September 2010. To enable time for the incoming Government to make a decision about how it wished to regulate representative actions and proof of debt schemes and for that decision to be implemented the transitional relief was extended to 1 March 2011.
Purpose of [CO 11/128]
[CO 11/128] will further enable the temporary operation of a litigation funding scheme and a proof of debt funding scheme without compliance with the requirements of the Act until 30 June 2011. This is to allow additional time for the Government to implement the legislative reform for litigation funding schemes and proof of debt schemes.
Operation of [CO 11/128]
[CO 11/128] varies [CO 10/333] by replacing 1 March 2011 in paragraph 10 with 30 June 2011.
Consultation
ASIC did not undertake consultation with respect to [CO 11/128] as it is a transitional measure 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 11/128] was enacted in 2011 under the authority of the Corporations Act 2001, with the objective of addressing the problem arising from the Full Federal Court's decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd. This decision categorised funded representative actions and solicitors' retainers for representative proceedings as managed investment schemes, necessitating their registration under the Act. In response, the government announced it would exempt such schemes from certain regulatory provisions, a measure implemented through ASIC's earlier Class Order [CO 10/333], which provided temporary relief until 1 March 2011. The subsequent Class Order [CO 11/128] extends this relief until 30 June 2011, granting additional time for legislative reform concerning litigation funding and proof of debt schemes. The Australian Securities and Investments Commission, acting under the powers granted by the Act, made this order to facilitate the continued operation of these schemes without full compliance with the Act’s requirements, allowing the government more time to develop and implement its regulatory framework.
Scope and Application
ASIC Class Order [CO 11/128] applies to litigation funding schemes and proof of debt funding schemes, specifically exempting them from certain provisions of the Corporations Act 2001 during a transitional period. This legislative instrument is designed to facilitate the continued operation of these funding schemes without the need for compliance with certain regulatory requirements, such as the need to hold an Australian Financial Services Licence (AFSL) or act as an authorised representative of a licensee to provide financial services. The exemption applies to the persons and entities involved in these funding arrangements, such as funders, lawyers, and their representatives. The geographic reach of the Act is national, as it pertains to entities and individuals operating within Australia. The transitional nature of the Class Order means it extends the relief provided by a previous Class Order [CO 10/333], which was set to expire on 1 March 2011, to 30 June 2011, thereby allowing additional time for the government to implement legislative reforms in this area. No consultation was undertaken by ASIC in relation to this Class Order as it was considered a minor, urgent measure to ensure the continued operation of these schemes.
Key Provisions
The ASIC Class Order [CO 11/128] primarily serves to extend the transitional relief period for certain litigation funding and proof of debt funding schemes. It modifies Class Order [CO 10/333] by extending the date until which these schemes can operate without compliance with certain provisions of the Corporations Act 2001 (the Act) from 1 March 2011 to 30 June 2011 (section 10). This extension is designed to provide additional time for the government to decide on the regulatory framework for these types of schemes. This relief includes exemptions from the definition of a managed investment scheme in section 9 of the Act, and from various parts of the Act that pertain to managed investment schemes, such as Parts 7.6, 7.7, 7.8, and 7.9, provided that appropriate conflict of interest management arrangements are in place (section 1).
The obligations imposed by the Class Order [CO 11/128] on the entities involved in litigation funding and proof of debt funding schemes are primarily to ensure that these schemes continue to operate in a manner that avoids triggering the requirements of the Act until the specified extension date. This includes adherence to the conflict of interest management arrangements that must be in place to qualify for the exemptions granted by the Order. Additionally, the entities must ensure that their operations remain within the scope of the transitional relief provided, avoiding any actions that would result in the application of the Act’s managed investment scheme provisions to their activities (section 2).
There are no direct offences or penalties specified in the Class Order [CO 11/128] itself. However, any failure to comply with the transitional relief provisions, or any breach of the conditions attached to the exemptions, could result in the Act’s provisions being applied retroactively. This could potentially lead to significant civil or criminal consequences, including fines and imprisonment, depending on the nature and severity of the breach. The specific penalties would be determined by the courts based on the relevant sections of the Corporations Act 2001 that the breach might trigger (section 3).