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Monday 22 April 2013

13-085MR ASIC releases guidance on managing conflicts of interest in litigation schemes and proof of debt schemes

ASIC today released guidance to help third-party litigation funders manage conflicts of interest.

Key points:

  • ASIC recognises close association between litigation funding and class actions

  • New regulations effective from 13 July 2013

  • Funders must have adequate practices to manage conflicts of interest

Regulatory Guide 248 Litigation schemes and proof of debt schemes: Managing conflicts of interest (RG 248) also applies to insolvency practitioners and lawyers involved in proof of debt schemes during the winding-up of insolvent companies.

‘Class action litigation has become an important feature of the corporate and legal landscape in Australia. A key factor in the increase in class action filings has been the emergence of commercial litigation funding,’ ASIC Commissioner John Price said.

‘Class actions can provide access to justice for a large number of consumers who may otherwise have difficulties in resolving disputes.

‘But there is also an inherent tension in these types of schemes between the interests of the funders, liquidators, lawyers and participating members.

‘Our guidance about the recent law changes in this area helps in the protection of members by setting out expectations of what is required to satisfy the obligation to maintain adequate practices and follow certain procedures for managing any conflicts.’

RG 248 provides guidance on:

  • effective disclosure of conflicts of interest to members of the scheme

  • controlling situations where interests may diverge or conflict (including identifying divergent interests, assessing and evaluating those interests and implementing an appropriate response)

  • recruitment of prospective members (including designating a senior person to oversee recruitment practices and ensure they are not misleading and deceptive)

  • the situation where the lawyer acts for both the funder and the members (including ensuring that the members’ interests are adequately protected)

  • the situation where there is a pre-existing relationship between the funder, lawyers and members (including disclosure of any pre-existing relationship)

  • the terms of any funding agreement, and

  • approval of the terms of settlement of a litigation scheme where proceedings have not been commenced by an independent panel or counsel.

‘The community expect funders to observe their conflicts requirements and any other relevant legal requirements,’ Mr Price said.

With the increase of class actions in Australia, ASIC wants to promote informed and confident consumers. ASIC will also shortly be producing material for consumers to help them decide whether they should participate in a class action.


With effect from 12 July 2013, under the Corporations Amendment Regulation 2012 (No.6) (the Regulations), as amended by the Corporations Amendment Regulation 2012 (No. 6) Amendment Regulation 2012 (No. 1) (Corporations Amendment Regulations), litigation schemes and proof of debt schemes will be exempt from the definition of ‘managed investment scheme’ in section 9 of the Corporations Act 2001 (Corporations Act). In order to clarify that these arrangements are not ‘financial products’ as defined in Chapter 7 of the Corporations Act, the Regulations provide exemptions from the licensing, conduct and disclosure requirements.

However, the Regulations also impose an obligation to maintain adequate practices, and follow certain procedures, for managing conflicts of interest regarding a litigation scheme or proof of debt scheme. ASIC will administer this new obligation.

More generally, lawyers are already subject to other obligations to their clients relating to conflicts of interest. For example, lawyers are subject to fiduciary duties to their client, ethical duties to the court, statutory duties under state or territory legal profession Acts, and professional codes of conduct and practice rules.


  • RG 248

  • Report 338 Response to submissions on CP 185 Litigation schemes and proof of debt schemes: Managing conflicts of interest (REP 338)

  • Submissions to Consultation Paper 185 Litigation schemes and proof of debt schemes: Managing conflicts of interest (CP 185)

Last updated: 22/04/2013 12:00