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Wednesday 23 December 2009

09-269MR ASIC grants conditional relief to improve access to capital for investors in frozen mortgage funds

ASIC today announced its intention to grant conditional relief for investors in frozen mortgage funds.

Under the move, investors will be granted relief from some of the requirements of the withdrawal provisions in the Corporations Act 2001 (The Act).

The purpose of the relief is to improve investor access to their money in frozen mortgage funds.

ASIC Commissioner Greg Medcraft said ‘The relief will enable a responsible entity to implement a ‘rolling’ withdrawal offer over a 12-month period.

‘A ‘rolling’ withdrawal offer is an offer made by a responsible entity to all members of a frozen mortgage fund an opportunity to withdraw, wholly or partly, from that,’ he said.

ASIC intends to grant conditional relief for a ‘rolling’ withdrawal offer that has the following features:

  • the offer exists for one calendar year and applies to all withdrawal opportunities made by the responsible entity over that calendar year;

  • all members can opt to provide a withdrawal request to the responsible entity, which applies to all withdrawal opportunities made by the responsible entity over the calendar year until it is withdrawn or amended by the member; and

  • all members can lodge a withdrawal request with the responsible entity at any time during the calendar year.

The relief, which will apply for a period of three years or until the frozen mortgage fund becomes liquid, will be subject to the following conditions:

The responsible entity:

  • provides all members of the frozen mortgage fund with information about the amount of each withdrawal opportunity and how the withdrawal opportunity is being funded prior to the withdrawal opportunity becoming open;

  • includes reminders about members’ ability to participate in the rolling withdrawal in any correspondence, statement or disclosure provided to members; and

  • notifies all members in writing of the outcome of each withdrawal opportunity within a reasonable period after the outcome is known by the responsible entity;

  • maintains a website that contains all relevant and up to date information in relation to the rolling withdrawal offer:

  • for so long as the withdrawal requests from members exceed available cash, the responsible entity must distribute all available cash to the members;

  • the responsible entity provides ASIC with information about each withdrawal opportunity, including the amount made available to satisfy withdrawal requests from members, as soon as practicable after the withdrawal amounts are paid.

ASIC will grant conditional relief from various technical requirements of the withdrawal provisions in Part 5C.6 of the Act to facilitate simpler and streamlined withdrawal procedures for investors seeking to redeem their investments in frozen mortgage funds.

Relief will generally be granted on individual application by responsible entities of frozen mortgage funds. To apply for the relief, an applicant will need to lodge an application for relief with ASIC.

Applications should be prepared in accordance with ASIC regulatory Guide 51: Applications for relief and be lodged through applications@asic.gov.au. In particular the application should clearly set out the various technical impediments in Part 5C.6 of the Act to offering the ‘rolling’ withdrawal offer. ASIC will need this information because the withdrawal procedures for each responsible entity and frozen mortgage fund.

Investors should contact their mortgage fund operator or financial adviser to determine whether their fund has obtained the relief.

Background

Mortgage funds froze redemptions in October 2008. Operators must freeze funds, if the fund’s underlying assets are illiquid, in the interests of all members to prevent withdrawals from destabilising the funds. A freeze means that for a period, the operators have decided to delay redemptions until liquidity improves. A freeze does not necessarily mean that there has been a loss of asset value, and it does not necessarily mean that investors will not get their money back. ASIC expects mortgage fund operators to take all steps, consistent with their obligations as responsible entities, to allow investors who wish to withdraw their money to do so as soon as possible.

Last updated: 23/12/2009 12:00