ASIC today announced that it will facilitate operators of ‘frozen funds’ making hardship payments to members

where the fund is in the process of winding up.

This relief is an extension of the relief ASIC has granted since October 2008 to improve investor access funds, to allow the operators of

frozen mortgage funds to pay hardship withdrawals, subject to certain conditions. This relief only operated while the fund was operating, and did not extend to the situation where a fund is being wound up.

What are the hardship grounds?

The hardship grounds that apply are the same as the existing hardship relief for frozen funds. The member must be able to satisfy the operator that they meet one of the following criteria:

1. member is unable to meet reasonable and immediate family living expenses;
2. compassionate grounds (e.g. medical costs for serious illness, funeral expenses or to prevent foreclosure);
3. permanent incapacity; and
4. member is unemployed for at least three months, without other means.

What conditions apply?

The conditions on the hardship relief are also the same as the existing hardship relief for frozen funds. They include:

1. the cap on hardship withdrawals for each member is $100,000 each calendar year; and
2. an investor can make up to four hardship withdrawals a calendar year (subject to the overall cap of $100,000).

In deciding whether to grant hardship relief for a frozen fund that is in the process of winding up, we will pay particular attention to whether the fund can make a full return of capital to members. In balancing the interests of all investors, ASIC may decide not to grant relief if we consider that members suffering hardship may receive a full return of capital, and other members may not.

Responsible entities of frozen funds that are being wound up will need to apply to ASIC for the relief by emailing applications@asic.gov.au, or posting the application to Manager – Applications, Australian Securities and Investments Commission, GPO Box 9827 in your capital city.

Background

A ‘frozen fund’ is a term that is often used to describe a registered managed investment scheme, such as a mortgage fund, originally marketed on the basis that investors had an ongoing or periodic right to redeem their investments on request, which has since suspended that right.

In October 2008, ASIC announced relief to facilitate operators of mortgage funds providing early withdrawal for members where there is hardship. This relief was expanded in August 2009 to expand the circumstances in which operators are able to make payments to fund members who demonstrate the need to access funds on hardship grounds (see ASIC Media Release 08-214 ASIC facilitates withdrawals from frozen funds and ASIC Media Release 09-148MR ASIC expands relief for hardship withdrawals from frozen mortgage funds respectively).

In December 2009, ASIC granted conditional relief from some of the requirements of the withdrawal provisions in the Corporations Act. The relief enables a responsible entity to implement a ‘rolling’ withdrawal offer over a 12-month period. See ASIC Media Release 09-269 ASIC grants conditional relief to improve access to capital for investors in frozen mortgage funds.