ASIC Class Order [CO 12/1482]

Administered by Department of the Treasury

Legislation au F2012L00209 Not in force Legislative Instrument

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ASIC CLASS ORDER [CO 12/1482]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 12/1482] under paragraph 283GA(1)(b) of the Corporations Act 2001 (the Act).

Section 283GA provides that ASIC may declare that Chapter 2L of the Act applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.

1. Background

A “debenture” in its simplest form is an undertaking to repay money.

Section 283BH of the Act sets out rules on how debentures may be described in a document relating to an offer (eg. a prospectus or an advertisement). Section 283BH includes three permitted categories, being a mortgage debenture, debenture and an unsecured note (or unsecured deposit note). The applicable category depends on the nature of any security, the type of property offered as collateral under the security and whether the property that constitutes the security is sufficient to meet the obligations under the debenture. Relevantly, only security over “tangible property” is taken into account for this purpose.

“Tangible property” is property that has an actual physical existence (for example, goods and land). Tangible property is distinguished from intangible or incorporeal property such as a chose in action (e.g. a receivable). A charge in favour of a trustee over a loan receivable by an issuer does not constitute a charge over the “tangible property” of the issuer. The law therefore requires that debentures that are only secured by receivables and other intangible property to be called an unsecured note or unsecured deposit note.

A large number of issuers in this market offer security in favour of the trustee over intangible property (eg. loans receivable) and the law requires that their product be described as an 'unsecured note' or 'unsecured deposit note'. ASIC has had a no-action position in the market since 2005 so that the reference to 'unsecured' could be avoided where the 'tangible property' requirement was not met. ASIC was asked to consult on the operation of the law in section 283BH of the Act out of concern from issuers and their representative groups that the law was unfair and led to a misleading description of certain products. We consulted on introducing a new category to sit between ‘unsecured note’ and ‘debenture’ in the hierarchy of how these products can be described under the Act.

2. Purpose of the class order

The purpose of this class order is to introduce a new “secured notes” category for the purposes of section 283BH of the Act where security has been provided over intangible property, subject to various conditions.

The class order provides issuers who offer debentures with sufficient first ranking security that do not satisfy the higher “debenture” or “mortgage debenture” naming tests with an alternative to “unsecured notes” for the purposes of section 283BH provided they meet the terms of the class order. Where the terms of the Class Order are met, a debenture will be able to be called a “secured note”.

The key objective of the class order is to strike an appropriate balance between assisting issuers avoid a label that their product is unsecured where there is sufficient security in place and ensuring that investors are aware of the risk of loss and readily understand the underlying security.

3. Operation of the class order

The class order declares that Chapter 2L of the Act applies to all persons as if section 283BH were modified or varied to introduce a new way of referring to a debenture in section 283BH, namely the “secured note” description. This is done by inserting a new category of “secured notes” into the table in subsection 283BH(1).

The class order introduces a new subsection 283BH(4) into the Act that set outs the circumstances in which the “secured notes” description can be used. The key requirements are that:

the issuer has provided a first ranking security interest in favour of the trustee; and
the security under the security interest is sufficient and is reasonably likely to be sufficient to meet the liability for the repayment of investor’s money.

There are also requirements for an issuer to ensure that advertisements for the product makes it clear that the secured note is not a bank deposit and there is a risk that investors could lose some or all of their money; and to make ongoing disclosure about the nature of the security interest and the secured property and related party exposures. An issuer using the term “secured note” is also required to make available on their website its most recent quarterly reports, its current disclosure document and the last 12 months of continuous disclosure notices.

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 class order is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act because it does not engage any of the applicable rights or freedoms. The effect of the class order is to modify the operation of statutory obligations which apply to bodies (for example, companies) but not to individuals.

5. Consultation

Before making this class order, ASIC engaged in public consultation.

In March 2011, ASIC released Consultation Paper 151: Debt securities: Modifying the naming provisions and advertising requirements.

In August 2011, ASIC conducted further consultation with respondents to the Consultation Paper and other interested parties.

Overview

The Australian Securities and Investments Commission (ASIC) enacted ASIC Class Order [CO 12/1482] under the Corporations Act 2001 to address a perceived gap in the classification of debentures in financial markets, specifically concerning the distinction between secured and unsecured notes. This legislative measure aims to introduce a new category of "secured notes" for debentures that are secured by intangible property, thereby offering issuers an alternative to labelling their products as "unsecured notes" when sufficient security is present. The primary objective of this class order is to balance the need for issuers to avoid the misleading impression that their products are unsecured, while ensuring that investors are fully informed of the potential risks and the nature of the underlying security. The class order modifies the Corporations Act to include the "secured notes" category and sets forth conditions that must be met for a debenture to be classified as such, including the provision of first-ranking security and the necessity for adequate security over intangible property. This initiative was developed following consultations with market participants and seeks to provide clarity and fairness in the description of financial products.

Scope and Application

The ASIC Class Order [CO 12/1482] applies to all persons and entities involved in the issuance of debentures, specifically those offering securities over intangible property. This class order modifies the Corporations Act 2001 to introduce a new category of "secured notes" for debentures that have first-ranking security interests over intangible property, thereby offering an alternative to the "unsecured note" label. This change aims to better reflect the nature of the security provided while ensuring investors are adequately informed about the risks associated with these investments. The class order is applicable nationally across Australia as it is a Commonwealth regulation. It does not exempt any specific entities or types of debentures from its scope but instead provides a conditional framework for how these debentures can be classified and advertised. The modifications to the Corporations Act 2001 are made under ASIC's authority to declare certain provisions, ensuring compliance with the Act while allowing for more nuanced descriptions of debenture securities.

Key Provisions

The main operative sections of ASIC Class Order [CO 12/1482] are sections 283BH and 283GA of the Corporations Act 2001. Section 283BH is modified to include a new category of "secured notes" for debentures that have first ranking security interests over intangible property, provided certain conditions are met. This is achieved by inserting a new category in the table of section 283BH(1) and adding a new subsection 283BH(4) that outlines the criteria for using the "secured notes" description. Section 283GA allows ASIC to declare that Chapter 2L of the Act applies as if specified provisions were omitted, modified, or varied. This class order modifies section 283BH to introduce the new category of "secured notes." The obligations and requirements imposed by the class order on the parties it governs, primarily issuers of debentures, include providing a first ranking security interest in favour of the trustee over the intangible property. The security must be sufficient and reasonably likely to be sufficient to meet the liability for repayment of investors’ money. Issuers must also ensure that advertisements clearly state that the secured note is not a bank deposit and that there is a risk that investors could lose some or all of their money. Additionally, issuers are required to make ongoing disclosure about the nature of the security interest and the secured property and related party exposures. Issuers must also make available on their website their most recent quarterly reports, current disclosure document, and the last 12 months of continuous disclosure notices. The class order does not explicitly state offences, penalties, or civil/criminal consequences for breach. However, issuers who fail to comply with the requirements of the class order may face legal consequences under the Corporations Act 2001, including potential fines and legal action. The penalties for breaches of the Act can vary widely depending on the specific offence and the circumstances of the breach. For example, under section 1317E of the Act, a corporation can be fined up to $1,320,000 for serious or repeated breaches of the disclosure obligations. Individuals responsible for the breach can also face personal penalties, including fines of up to $264,000 and imprisonment for up to five years. The Act also provides for the possibility of disqualifying directors and officers of the corporation from managing corporations in the future.

Area of Law: Corporate Law & Governance
Instrument: Regulation
Concepts: Definitions & Interpretation; Licensing & Registration; Reporting & Disclosure Obligations; Regulatory Standards
Catchwords: secured notes

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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.

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