The Australian Securities and Investments Commission (ASIC) today announced that it will give relief to facilitate changes to the scheme constitutions of listed registered schemes, and certain unlisted schemes, to remove their limited lives without requiring a special resolution of members.
Concerns had been raised that the ‘perpetuity clause’ in trust deeds and other scheme constitutions of listed property trusts, as well as other registered schemes, meant that members’ funds should be treated as a liability rather than equity in financial statements prepared under new accounting standards.
Registered scheme financial reports prepared under the Corporations Act 2001 are required to comply with Australian equivalents to the International Financial Reporting Standards (AIFRS) for reporting periods beginning on or after 1 January 2005.
Under accounting standard AASB 132 ‘Financial Instruments: Disclosure and Presentation’ members’ funds may be regarded as liabilities as there is no unconditional right to avoid settling a contractual obligation to pay out the schemes’ equity to members at the end of the life of the scheme.
The ASIC relief will apply to listed schemes and unlisted schemes that are not subject to a mandatory redemption requirement.
‘We expect that many responsible entities will be able to amend scheme constitutions to remove any ‘perpetuity clause’ without going to the expense of holding a meeting to obtain member approval’, ASIC’s Chief Accountant, Mr Greg Pound said.
A perpetuity clause may require the scheme to be terminated at a particular date, within a set period (eg 80 years), or when an event such as the death of the last lineal descendent of King George V occurs.
Removing any perpetuity clause will not impact on any existing ability of scheme members to sell their units on market.
Relief will only be available where the responsible entity reasonably considers that the removal of the perpetuity clause does not either substantially:
- change the nature of the scheme; or
- adversely affect members’ interests.
In considering whether to rely on the class order to remove the perpetuity clause, responsible entities must have regard to their statutory duties to act in the best interests of members.
As a condition of the relief, the responsible entity must give each scheme member a written notice that sets out the reason for, and effect of, the deed amendment.
Responsible entities of listed property trusts and their auditors will need to form their own views as to whether there are any other reasons why members’ funds should be treated as liabilities under the new accounting standards.
Responsible entities should be mindful that members’ funds may need to be disclosed as liabilities at 30 June 2005 in any financial report for the half-year then ending if any perpetuity clause has not been removed before that date.