ASIC Class Order [CO 12/1301]

Administered by Department of the Treasury

Legislation au F2012L01965 Not in force Legislative Instrument

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ASIC CLASS ORDER [CO 12/1301]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

 

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 12/1301] 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 ASIC 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.

 

1. 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 Class Order [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 Australian financial services licence 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 persons from the requirement to 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.

 

On 23 June 2011, ASIC executed Class Order [CO 11/555]. This class order varied Class Order [CO 10/333] to exempt a person from the requirements in the Act for a litigation funding arrangement or a proof of debt funding arrangement to the extent the arrangement, or an interest in the arrangement, is otherwise characterised as a financial product, including an interest in a single member arrangement that is characterised as a financial product.

 

On 12 July 2012, the Corporations Amendment Regulation 2012 (No.6) (the Regulations) were made. The Regulations:

  1. clarify that litigation funding schemes and proof of debt funding schemes are not managed investment schemes under the Act;
  2. exempt a person from the licensing, conduct and disclosure requirements in Ch7 of the Act in relation to a litigation scheme or proof of debt scheme; and
  3. address conflicts of interest in litigation schemes and proof of debt schemes.

 

The Regulations were registered on 13 July 2012 and commences on the day that is six months after it is registered.

 

The relief in [CO 10/333] (as varied) had effect until 30 September 2012.

 

2. Purpose of [CO 12/1301]

 

Class Order [CO 12/1301] 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 13 January 2013.

 

Class Order [CO 12/1301] will also extend the 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, until 13 January 2013.

 

This is to allow a person providing a financial service in relation to a litigation scheme or proof of debt scheme to smoothly transition to the requirements of the Regulations which include establishing and maintaining adequate arrangements to manage conflicts of interest.

 

3. Operation of [CO 12/1301]

 

Class Order [CO 12/1301] varies [CO 10/333] by replacing “30 September 2012” in paragraph 10 with “13 January 2013”.

4. Statement of Compatibility with Human Rights

 

This statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

This legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 because it does not engage any of the applicable rights or freedoms.

 

5. Consultation

 

ASIC consulted with Treasury in relation to making this instrument. ASIC did not undertake wider consultation with respect to [CO 12/1301] as it extends existing relief for a short period pending the commencement of the Regulations.  

 

Overview

The Australian Securities and Investments Commission (ASIC) enacted Class Order [CO 12/1301] under the Corporations Act 2001 to address the problem of litigation funding and proof of debt funding arrangements being characterised as managed investment schemes or financial products, which required compliance with certain regulatory requirements. This legislative instrument was introduced to provide a temporary exemption from the licensing, conduct, and disclosure requirements of the Corporations Act for such arrangements, in order to allow for a smooth transition to the new regulatory requirements set out in the Corporations Amendment Regulation 2012 (No.6). The Class Order extends the relief provided by ASIC's previous Class Order [CO 10/333] and its variation [CO 11/555] until 13 January 2013, enabling the temporary operation of litigation funding and proof of debt funding schemes without full compliance with the Corporations Act. The policy objective of this measure is to ensure that individuals and entities involved in these funding arrangements have sufficient time to adjust to the new regulatory framework, while still maintaining adequate arrangements to manage conflicts of interest.

Scope and Application

The ASIC Class Order [CO 12/1301] applies to persons involved in litigation funding schemes and proof of debt funding schemes, and entities engaged in providing financial services in relation to these schemes. The scope of the order includes those who provide, manage, or participate in these funding arrangements. It extends to transactions and conduct that involve the financial aspects of litigation funding and proof of debt arrangements. The geographic reach of the order is national, operating under the Commonwealth jurisdiction established by the Corporations Act 2001. The order provides exemptions and modifications from various sections of the Act, including but not limited to the definition of a managed investment scheme and the requirements for licensing, conduct, and disclosure associated with financial products. The Class Order [CO 12/1301] is designed to provide a transitional period until 13 January 2013, allowing for the smooth implementation of the new regulatory requirements as outlined in the Corporations Amendment Regulation 2012 (No. 6). This transitional relief is contingent upon the establishment of adequate conflict of interest management arrangements. The order builds upon previous regulatory measures, including Class Order [CO 10/333] and Class Order [CO 11/555], which initially provided similar exemptions and modifications to facilitate the operation of litigation and proof of debt funding schemes.

Key Provisions

The ASIC Class Order [CO 12/1301] extends the relief provided under the previous Class Order [CO 10/333] by amending the expiry date from 30 September 2012 to 13 January 2013 (section 3). This relief primarily concerns litigation funding schemes and proof of debt funding schemes, allowing them to operate temporarily without the full compliance requirements of the Corporations Act 2001 (the Act). Specifically, Class Order [CO 12/1301] modifies the earlier order by varying the end date, thereby continuing the exemption from certain licensing, disclosure, and conduct requirements for these types of schemes until the new specified date (section 4). The obligations imposed by Class Order [CO 12/1301] include the requirement for parties involved in litigation funding schemes and proof of debt funding schemes to establish and maintain adequate arrangements to manage conflicts of interest (section 2). This ensures that while these schemes operate outside the full scope of the Corporations Act, they do so in a manner that mitigates potential conflicts effectively. This transitional period is intended to provide sufficient time for these entities to adjust to the forthcoming regulatory requirements established by the Corporations Amendment Regulation 2012 (No.6), which were set to commence six months after their registration on 13 July 2012. Failure to comply with the provisions of the Class Order [CO 12/1301], or the broader requirements of the Act once the transitional period ends, can result in various civil and criminal consequences. The penalties for breaches of the Corporations Act can include fines and, in more serious cases, imprisonment. The maximum penalties depend on the nature and severity of the breach, but can be substantial, reflecting the importance of compliance with financial services regulations. In summary, Class Order [CO 12/1301] provides an extension of relief for litigation funding and proof of debt funding schemes until 13 January 2013, during which these schemes can operate with reduced regulatory burdens. This is intended to facilitate a smoother transition to the new regulatory requirements established by the Corporations Amendment Regulation 2012 (No.6). However, entities must ensure they establish adequate conflict of interest management arrangements to remain compliant during this transitional period.

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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.