ASIC Class Order [CO 11/555]

Administered by Department of the Treasury

Legislation au F2011L01303 Not in force Legislative Instrument

Legislation content

 

ASIC CLASS ORDER [CO 11/555]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

 

The Australian Securities and Investments Commission (ASIC) makes [CO 11/555] 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]:

  1. 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.
  2. 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.
  3. 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.

 

On 15 March 2011, the New South Wales Court of Appeal held in International Litigation Partners Pte Ltd v Chameleon Mining NL [2011] NSWCA 50 that a litigation funding agreement was a financial product under s763A of the Act because it is a facility through which financial risk is managed.

 

The relief in [CO 10/333] originally had effect until 30 September 2010. The transitional relief was extended to 30 June 2011.

 

Purpose of [CO 11/555]

 

[CO 11/555] will further enable the temporary operation of a litigation funding scheme and a proof of debt funding scheme that is characterised as a managed investment scheme under the Act without compliance with the requirements of the Act until 30 September 2011.

 

[CO 11/555] also provides transitional relief from the requirements in the Act for a litigation funding arrangement and a proof of debt funding arrangement that is otherwise characterised as a financial product, or an interest in a financial product, including an interest in a single member arrangement that is characterised as a financial product.  

 

This is to allow additional time for the Government to implement their legislative reform.  

 

Operation of [CO 11/555]

 

[CO 11/555] varies [CO 10/333] to exempt 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 arrangement or a proof of debt funding arrangement to the extent the arrangement, or an interest in the arrangement, is a financial product.  

 

[CO 11/555] also varies [CO 10/333] to exempt a person from the requirement to comply with the disclosure provisions in Pt 7.9 of the Act in relation to a litigation funding arrangement or a proof of debt funding arrangement to the extent the arrangement, or an interest in the arrangement, is a financial product.  

 

[CO 11/555] varies [CO 10/333] by replacing 30 June 2011 in paragraph 10 with 30 September 2011.

 

[CO 11/555] does not apply to litigation funding arrangements or proof of debt funding arrangements that already have the benefit of individual relief from ASIC while that individual relief applies.

 

Consultation

 

ASIC did not undertake consultation with respect to [CO 11/555] as it is provides relief only for a short period pending implementation of the Government’s decision by regulation.

 

Overview

The ASIC Class Order [CO 11/555] was enacted in 2011 to address the problem of litigation funding schemes and proof of debt funding arrangements being classified as managed investment schemes or financial products under the Corporations Act 2001, a situation that had arisen following court rulings in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd and International Litigation Partners Pte Ltd v Chameleon Mining NL. The Australian Securities and Investments Commission (ASIC), acting under the authority granted by the Corporations Act, introduced [CO 11/555] to provide temporary relief from certain regulatory requirements for these funding arrangements, allowing them to operate without full compliance with the Act until legislative reforms could be implemented. The Class Order was designed to exempt relevant parties from the need to hold an Australian Financial Services Licence (AFSL) or act as an authorised representative, and from disclosure requirements, provided that appropriate conflict management arrangements were in place. The policy objective of [CO 11/555] was to facilitate the continued operation of litigation and proof of debt funding schemes during the transition period while awaiting the government's legislative response.

Scope and Application

ASIC CLASS ORDER [CO 11/555] applies to funders, lawyers, their representatives, and other persons involved in litigation funding arrangements and proof of debt funding arrangements, extending the relief initially provided by [CO 10/333] until 30 September 2011. The relief is intended to allow these arrangements to operate temporarily without compliance with certain requirements of the Corporations Act 2001, including the definition of a managed investment scheme and the need to hold an Australian Financial Services Licence (AFSL) or act as an authorised representative of a licensee. This class order aims to provide additional time for the government to implement legislative reforms in this area. The order also exempts these arrangements from the disclosure provisions in Part 7.9 of the Act, provided the arrangement or an interest in it is characterised as a financial product. Importantly, [CO 11/555] does not apply to any litigation funding arrangements or proof of debt funding arrangements that already have the benefit of individual relief from ASIC, as long as that individual relief remains in effect.

Key Provisions

The ASIC Class Order [CO 11/555] primarily modifies the Corporations Act 2001 by exempting certain litigation funding arrangements and proof of debt funding arrangements from specific provisions of the Act until 30 September 2011 (s1). This order extends the transitional relief initially provided by [CO 10/333], which was set to expire on 30 June 2011. Under [CO 11/555], funders, lawyers, their representatives, and other involved parties are exempted from holding an Australian Financial Services License (AFSL) or acting as an authorised representative of a licensee to provide financial services associated with these arrangements if they are considered financial products (s2). Additionally, the order exempts individuals from the disclosure requirements in Part 7.9 of the Corporations Act 2001 concerning these financial products (s3). The obligations imposed by [CO 11/555] include ensuring that appropriate arrangements are in place to manage conflicts of interest in litigation funding and proof of debt funding schemes. These obligations are crucial to maintain the integrity and transparency of these arrangements, ensuring that they do not contravene the spirit of the Corporations Act 2001 while the transitional relief is in effect (s4). The order also specifies that it does not apply to arrangements that already have individual relief from ASIC while such relief is in effect (s5). Breaching the provisions of [CO 11/555] could lead to significant civil and criminal consequences. Under the Corporations Act 2001, penalties for non-compliance can include substantial fines and imprisonment. For corporations, the maximum penalty for contravening the Act can be up to $1.65 million or three times the benefit obtained, whichever is greater (s6). For individuals, the maximum penalty can be up to $330,000 or imprisonment for up to five years, or both (s7). These penalties underscore the importance of adhering to the provisions set forth in [CO 11/555] to avoid severe repercussions.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.