The Australian Securities and Investments Commission (ASIC) has expanded the class order relief available to responsible entities of managed investment schemes by releasing Class Order [CO 05/26] Constitutional provisions about the consideration to acquire interests.
This new class order replaces Class Order [CO 98/52] Relief from the consideration to acquire constitutional requirement.
The new class order carries over the previous relief that ASIC provided in Class Order [CO 98/52], with some additional refinements. Class Order [CO 05/26] covers some circumstances for which ASIC previously granted relief on a case-by-case basis and now considers ought to apply to all responsible entities, other than timeshare responsible entities.
‘In preparing the new class order, we looked to resolve some technical issues associated with our former relief that were identified in submissions from industry stakeholders’, ASIC Director, Regulation, Mr John Price said.
The attachment to this information release outlines the differences between Class Order [CO 05/26] and Class Order [CO 98/52].
A copy of the new class order is available from the ASIC website at www.asic.gov.au/co or by calling ASIC’s Infoline on 1300 300 630.
End of release
Download a copy of Class Order [CO 05/26] Constitutional provisions about the consideration to acquire interests
Attachment to [IR 05-20]
Class Order [CO 05/26] modifies paragraph 601GA(1)(a) of the Corporations Act 2001 to permit the responsible entity of a registered managed investment scheme to issue interests in the scheme at a discounted price in certain defined circumstances. For further information, see ASIC Policy Statement 134 Managed investment schemes: constitutions [PS 134] .
The table below summarises the key policy differences between Class Order [CO 05/26] and its predecessor Class Order [CO 98/52].
|
Item |
Class Order [CO 98/52] |
Class Order [CO 05/26] |
|---|---|---|
|
Placements – volume of interests |
The volume of interests that could be issued without member approval over any 12 month period was 10%, calculated immediately after the placement issue. |
The volume of interests that can be issued without member approval over any 12 month period is 15%, calculated immediately before the issue. This amendment was made to make ASIC’s class order relief consistent with rule 7.1 of the ASX Listing Rules. |
|
Placements – eligibility to vote whether to approve issues of interests |
Where interests were either being issued at more than a 10% discount to the market price or more than 10% interests in the scheme would be issued in a 12 month period by way of a placement, approval of members was required and no member who was to obtain interests in the placement could vote (or at least have their votes counted). |
Where either interests are being issued at more than 10% discount to the market price or more than 15% interests in the scheme are issued in a 12 month period by way of a placement, nominees who hold scheme interests on behalf of others can exercise votes for beneficial interest holders who are not participating in the placement. This change was made to cure an unintended drafting consequence of previous ASIC relief that had the effect of disenfranchising some beneficial interest holders even though they would not participate in the placement. |
|
Pro rata rights issues – treatment of interests offered to but not acquired by members |
The responsible entity could only offer interests to ‘only and all’ of the scheme members. If members did not acquire interests offered to them, they could not be offered/issued to anyone else. |
Provided that the responsible entity first offers interests to all members of the scheme, where members do not acquire the interests offered to them, there is nothing preventing the responsible entity from offering/issuing those interests to third parties who may not be members of the scheme, so long as the third parties are not associates of the responsible entity. This change was made to facilitate genuine underwriting arrangements for these rights issues. |
|
Pro rata rights issues – treatment of retail and institutional investors |
The responsible entity was required to comply with paragraph 601FC(1)(d) of the Act, which requires it to treat members who hold interests of the same class equally. |
The responsible entity is exempted from its paragraph 601FC(1)(d) obligations where it treats retail and institutional investors differently by giving retail investors certain benefits that are not available to institutional investors - a longer period to consider the offer and a choice of dates when their interests are issued. ASIC considered that institutional investors were likely to have sufficient expertise so that they could make an investment decision quickly. Therefore it was not unfair to give retail investors a longer period to make an informed decision about whether to participate in an offer. |
|
Forfeited interests – where the call is not paid on partly paid interests |
The procedures set out in section 254Q of the Act applied – excluding subsections 254Q(1), (10) and (13) |
The procedures set out in section 254Q of the Act apply – excluding subsection (9) as well as subsections (1), (10) and (13). This was done following analysis which concluded that it was not practical for responsible entities to comply with these requirements. |
|
Treatment of foreign members (registered address outside Australia) |
In pro rata rights issues, pro rata options issues and distribution reinvestment plans, the responsible entity could exclude foreign members from an offer if they considered it was in the best interests of the scheme members as a whole to do so and the interests not offered to the foreign members were sold by a nominee, with the net sale proceeds paid to those foreign members. In interest purchase plans, the responsible entity could exclude foreign members from an offer if it considered that it was in the best interests of the scheme members as a whole to do so and not unfair to those members. |
If the responsible entity wishes to exclude foreign members from a pro rata issue of interests or options, where the scheme is listed on the Australian Stock Exchange (ASX), the requirements of ASX listing rule 7.7 must be met. If the scheme is not ASX listed, and the offer is renounceable, the responsible entity must appoint a nominee to sell the foreign members' rights and remit the net proceeds of sale to the foreign members. In any other case involving a rights issue, as well as in the case of distribution reinvestment plans and interest purchase plans, the responsible entity can exclude foreign members if it considers that it would be unreasonable to make offers to them. This recognises that making interest purchase plan, pro rata rights issue or distribution reinvestment plan offers in some jurisdictions would amount to a breach of their laws. |