ASIC has today announced changes to Class Order [CO 05/26] Constitutional provisions about the consideration to acquire interests which will allow issues of discounted interests to associates of the responsible entity of listed managed investment schemes.

‘The class order will allow the responsible entity of a listed managed investment scheme to issue discounted interests to an associate who is the underwriter of a placement or a rights issue of interests in the scheme in some circumstances. It also allows associates of the responsible entity to participate in placements where they acquire the interests in a non-beneficial capacity’, ASIC’s Director Applications & Licensing, Mr John Price said.

ASIC has also made some technical changes to the class order to improve its operation. ASIC has made these changes in response to feedback it’s received following the class order’s release in May 2005.

The attachment to this information release outlines the policy and technical changes that have been made to Class Order [CO 05/26].

Note: The class order will commence after it has been gazetted and recorded on the Federal Register of Legislative Instruments (FRLI) in electronic form. The FRLI may be accessed at www.frli.gov.au.

Download copies of the class orders below or call ASIC’s Infoline on 1300 300 630

Download a copy of Class Order [CO 07/18] Variation of Class Order [CO 05/26]

Download a copy of Class Order [CO 05/26] Constitutional provisions about the consideration to acquire interests

ATTACHMENT TO [IR 07-02]

Paragraph 601GA(1)(a) of the Corporations Act 2001requires the constitution of a registered managed investment scheme to make adequate provision for the consideration to acquire an interest in the scheme. Class Order [CO 05/26] modifies paragraph 601GA(1)(a) to give the responsible entity some discretion to set the standard price of interests and to make certain issues of interests in the scheme at a discount. Most of the changes introduced by Class Order [CO 07/18] relate to the issue of interests at a discount.

Associate underwriting

ASIC has previously granted individual relief to enable an associate of the responsible entity to be the underwriter for a particular placement or a rights issue of interests in a listed managed investment scheme. ASIC received submissions from participants in the listed managed investments industry requesting the inclusion of this relief in the class order. ASIC has included this relief in its class order subject to various conditions that address the risks associated with the potential conflict between the best interests of members and the interests of the responsible entity and its associates.

The class order permits an associate of the responsible entity to underwrite a placement or a rights issue of interests in a listed scheme provided that:

(a) the underwriting agreement is entered on terms that are not more favourable to the associate than arm’s length terms; and

(b) the underwriter holds an Australian financial services licence that authorises it to underwrite issues of interests in a managed investment scheme and contains conditions that apply where it is an associate of the responsible entity which:

(i) prevent it from exercising voting rights in respect of the interests it acquires as underwriter; and

(ii) restrict its ability to transfer interests to associates in off-market trading.

Placements to associates

Class Order [CO 05/26] previously did not allow interests to be issued in a placement to a person who was the responsible entity’s associate. On a number of occasions ASIC has granted individual relief from this restriction where an associate wanted to participate in the placement in its capacity as a fiduciary (such as a superannuation trustee or a responsible entity of another registered scheme) for the benefit of its underlying investors. These associates would be buying the interests for the benefit of others. The associate owes the beneficial owners of the interests certain fiduciary duties and these duties would prevent the associate from participating in the issue for an improper purpose. Excluding these entities from participating in a placement where the associate is an existing member of the scheme disadvantages the beneficial owners of the interests. On this basis, ASIC has relaxed the prohibition on associates participating in placements in the class order, so that associates who are existing members and hold interests in a fiduciary capacity can participate. However, these associates may only participate to the extent necessary to maintain their proportionate holding of interests in the scheme.

Other technical changes to the class order

Class Order [CO 07/18] also clarifies or updates the following aspects of Class Order [CO 05/26]:

• the meaning of the term “related issue”;
• the interaction between sections 601GAA and 601GAB (which the class order inserts into the Act);
• the exemption in the class order from the obligation in paragraph 601FC(1)(d) of the Act to treat members equally that pertains to rights issues that are offered to institutional investors on an accelerated basis;
• the reference to ASX (reflecting its recent name change from “Australian Stock Exchange Limited” to “ASX Limited”); and
• the list of approved foreign markets.