ASIC Corporations (Amendment) Instrument 2016/476

Administered by Department of the Treasury

Legislation au F2016L01170 Not in force Legislative Instrument

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ASIC CORPORATIONS  (AMENDMENT) Instrument 2016/476

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

 

The Australian Securities and Investments Commission (ASIC) makes ASIC Corporations (Amendment) Instrument 2016/476 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.

 

Section 9 of the Act provides that, subject to certain exemptions, a managed investment scheme includes a scheme that has the following features:

 

(a)  people contribute money or money's worth as consideration to acquire rights to benefits produced by the scheme

(b)  any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (members) who hold interests in the scheme

(c)  the members do not have day to day control over the operation of the scheme.

 

Section 601ED of the Act requires that a managed investment scheme must be registered with ASIC including where it has more than 20 members or is promoted by a professional promoter in certain circumstances.

 

Section 601MB of the Act provides that contracts are voidable at the option of a member of a scheme where an invitation or offer is made and the offeror has failed to comply with s601ED or Div 2 of Pt 7.9.

 

Section 911A of the Act requires that a person carrying on a business of providing financial services must hold an Australian financial services licence (AFSL) that authorises them to provide that financial service.

 

Section 911B of the Act requires that a person must only provide a financial service on behalf of another person who carries on a financial services business where certain conditions are satisfied.

 

Section 992A of the Act prohibits a person from offering financial products in the course of, or because of, an unsolicited meeting or telephone call.  Section 992AA prohibits such conduct in relation to interests in managed investment schemes.

 

Part 7.9 of the Act imposes various disclosure obligations on the issuer of a financial product, including to give a Product Disclosure Statement and provide ongoing disclosure in certain circumstances.

 

Regulations had not been made to exempt representative proceedings and proof of debt arrangements that are subject to a conditional costs agreement 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.

 

On 11 July 2013 ASIC executed Class Order [CO 13/898] to provide time for the Government to consider this new legislative reform. Class Order [CO 13/898]:

 

  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 funded by conditional costs agreements.
     
  2. exempts 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 that is funded by conditional costs agreements.

 

3.      exempts persons from the requirement to comply with the hawking prohibitions in ss992A and 992AA in relation to a litigation funding scheme and a proof of debt funding scheme that is funded by conditional costs agreements.
 

4.      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 that is funded by conditional costs agreements.

 

Relief equivalent to that referred to paragraphs 2 to 4 is also given in relation to arrangements that are financial products but not interests in managed investment schemes that are similar to litigation funding schemes and proof of debt funding schemes that are funded by conditional costs agreements.

 

This is to allow a lawyer or law firm providing a financial service in relation to a litigation scheme or proof of debt scheme that is funded by a conditional costs agreement to operate without compliance with the requirements of the Act while the Government considers making regulations in this area.

 

On 1 July 2014 ASIC made Class Order [CO 14/571] to extend the operation of [CO 13/898] to 12 July 2016 to enable the Government more time to consider its position on litigation funding. It will be a matter for the incoming government whether or not to make regulations to deal with these issues.

 

2. Purpose of ASIC Corporations (Amendment) Instrument 2016/476

 

This class order will extend the relief in Class Order [CO 13/898] to enable representative proceedings and proof of debt arrangements that are subject to a conditional costs agreement 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.

 

until 12 July 2017. This is to allow further time for the Government to consider its position on whether to exempt litigation funding arrangements and proof of debt funding arrangements under similar terms as those in Class Order [CO 13/898].

 

3. Operation of ASIC Corporations(Amendment) Instrument 2016/476

 

ASIC Corporations (Amendment) Instrument 2016/476 amends Class Order [CO 13/898] by replacing "12 July 2016." in paragraph 9 with "12 July 2017.".
 

4. Consultation

 

ASIC consulted with Treasury in relation to making this instrument. ASIC did not undertake wider consultation with respect to ASIC Corporations (Amendment) Instrument 2016/476 as it is minor and machinery in nature and provides relief only for a short period pending the Government's decision.  

 

 


Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

ASIC Corporations (Amendment) Instrument 2016/476

 

This class order 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.

 

Overview of the class order

 

ASIC Corporations (Amendment) Instrument 2016/476 extends the relief in Class Order [CO 13/898] to enable the temporary operation of representative proceedings and proof of debt arrangements funded by conditional costs agreements without compliance with the requirements of the Act until 12 July 2017. The objective of Class Order [CO 13/898] is to allow a lawyer or law firm providing a financial service in relation to a litigation scheme or proof of debt scheme that is funded by conditional costs agreements to operate without compliance with the requirements of the Act while the Government considers making regulations in this area.


Human rights implications

 

This class order does not engage any of the applicable rights or freedoms.

 

Conclusion

 

This class order is compatible with human rights as it does not raise any human rights issues.

Overview

The ASIC Corporations (Amendment) Instrument 2016/476 was enacted to address the gap in the Corporations Act 2001 (the Act) regarding the treatment of litigation funding schemes and proof of debt arrangements funded by conditional costs agreements. This was prompted by the Full Federal Court's decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147, which held that such schemes should have been registered as managed investment schemes under the Act. However, the Act did not have specific regulations to exempt these schemes from certain requirements, such as registration, licensing, and disclosure obligations. The Australian Securities and Investments Commission (ASIC), acting under the authority granted by the Act, introduced this instrument to provide temporary relief until the Government could consider and implement regulatory changes. The policy objective is to allow legal professionals involved in these funding schemes to operate without immediate compliance with the Act, providing a transition period while the Government deliberates on appropriate regulatory measures.

Scope and Application

ASIC Corporations (Amendment) Instrument 2016/476 applies to representative proceedings and proof of debt arrangements that are subject to a conditional costs agreement, providing them with temporary exemptions from certain provisions of the Corporations Act 2001. This includes exemptions from the definition of a "managed investment scheme" and from Parts 7.6, 7.7, 7.8, and 7.9 of the Act, which cover licensing requirements, conduct prohibitions, and disclosure obligations. This instrument extends the relief provided by ASIC's Class Order [CO 13/898] to 12 July 2017, allowing further time for the government to consider whether to make regulations that permanently exempt these arrangements from the Act. The exemptions are intended to permit lawyers and law firms providing financial services in relation to litigation and proof of debt schemes funded by conditional costs agreements to operate without complying with the Act's requirements while the government deliberates on this matter. This legislation does not specify any exclusions, exemptions, or thresholds beyond the terms of the temporary relief provided by the class order.

Key Provisions

The ASIC Corporations (Amendment) Instrument 2016/476 modifies existing Class Order [CO 13/898], which was intended to provide temporary relief from certain provisions of the Corporations Act 2001 (the Act) for litigation funding and proof of debt arrangements. Specifically, the Instrument extends the period of this relief until 12 July 2017, as stated in Section 3 of the Instrument. This extension is to allow the Government more time to consider whether to make regulations that would permanently exempt such arrangements from the relevant sections of the Act. The key provisions of the Act that are temporarily modified by this Instrument include the definition of a managed investment scheme in Section 9, and the requirements in Parts 7.6, 7.7, 7.8, and 7.9 of the Act. This means that, during the period of relief, litigation funding and proof of debt arrangements funded by conditional costs agreements are not subject to the same requirements as other managed investment schemes. For example, these arrangements do not need to be registered with ASIC under Section 601ED, and the contracts associated with them are not voidable under Section 601MB if ASIC requirements are not met. Parties or entities affected by this Instrument, such as lawyers and law firms providing financial services related to litigation or proof of debt schemes, are required to ensure their activities comply with the temporary relief provisions until the end date of 12 July 2017. This includes understanding the conditions under which these arrangements can operate without the full regulatory oversight normally required by the Act. There are no specific offences, penalties, or civil/criminal consequences outlined in the Instrument itself for breach of its provisions, as the relief is intended to be temporary and subject to future legislative action. However, if the Government decides not to enact permanent regulations and the relief is not extended, the full provisions of the Act would apply again, potentially resulting in penalties for non-compliance. The penalties for breaches of the Act's provisions, such as failure to register a managed investment scheme or providing financial services without an appropriate licence, can include substantial fines and imprisonment for individuals, depending on the severity of the breach.

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