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16-271MR Macquarie Investment Management penalised over Corporations Act contraventions
The Supreme Court of New South Wales has found that Macquarie Investment Management Ltd (MIML) contravened the Corporations Act by failing to comply with its duties as a responsible entity of the van Eyk Blueprint International Shares Fund (VBI Fund). The Court made declarations of contravention and ordered that MIML pay a civil pecuniary penalty of $400,000, as well as $200,000 for ASIC's legal costs.
The decision comes as a result of civil penalty proceedings brought by ASIC against MIML in June this year. MIML admitted the contraventions and the parties filed a Statement of Agreed Facts and joint submissions as to the appropriate penalty (refer: 16-199MR).
The Court found that MIML failed to comply with its duties as a responsible entity by:
- failing to exercise the degree of care and diligence that a reasonable person would exercise if they were in MIML's position with respect to 3 investments totalling $30m into Cayman Islands based fund Artefact Partners Global Opportunities Fund (Artefact), between 6 July to 30 October 2012;
- allowing members to redeem or withdraw units from the VBI Fund when it was illiquid in contravention of the Corporations Act between 15 June 2013 to 9 September 2013; and
- failing to make adequate and timely enquiries in relation to van Eyk’s monitoring of the VBI Fund’s investment in Artefact between 18 February 2013 and 21 July 2014 (including not making adequate and timely enquiries as to why a full redemption from Artefact had not been paid between 1 January 2014 to 21 July 2014).
Commissioner Greg Tanzer said, "This is a significant decision for investors and confirms the important role of responsible entities in monitoring and supervising funds, even where external managers are appointed. ASIC will take action when responsible entities fail to meet those obligations."
ASIC has taken a number of actions to improve compliance by responsible entities and protect the interests of unit holders, investors and members (refer generally: 15-251MR).
Other current and past actions include:
- Five former executives of MFS Investment Management Limited were found liable for breaching their duties as officers of a responsible entity, following $143.5 million of unitholders’ money used to repay debts. (16-158MR).
- Following the collapse of Gold Coast-based fund manager LM Investment Management, ASIC is seeking financial penalties and banning orders against director Peter Drake and former directors. ASIC alleges Mr Drake used his position to gain an advantage for himself and former directors breached their duties by failing to act with the proper degree of care and diligence. (14-308MR).
- ASIC is seeking court orders to wind up Avestra Asset Management and has alleged that on that Avestra contravened its duties in relation to a number of managed investment schemes for which it is the responsible entity. ASIC alleges that Avestra borrowed money on an unsecured basis from the property of its schemes, and invested scheme property in entities and offshore funds connected to its directors without proper due diligence or regard for the interests of members. (15-256MR).
- On 5 November 2014, the High Court unanimously upheld a decision of the Full Court of the Federal Court of Australia that found Wellington Capital acted improperly in distributing shares in Asset Resolution Limited to unit holders in the Premium Income Fund, for which it acts as the responsible entity. Wellington did not consult with nor obtain the consent of unit holders prior to undertaking these transactions and acted beyond the powers set out in the Premium Income Fund constitution. (14-293MR).
On 26 August 2016, Justice Barrett published his judgment in the matter of Macquarie Investment Management Limited.
His Honour said, "This case highlights the need to emphasise again the basic duty of the responsible entity of a registered managed investment scheme to exercise the care and diligence that a reasonable person would exercise in the same position. Such a responsible entity holds scheme property on trust for scheme members...Like every trustee, a responsible entity is… bound to take "all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own".
His Honour continued, noting that, "The 1993 joint report of the Australian Law Reform Commission and the Companies and Securities Advisory Committee on which the present regulatory regime is based was entitled simply Other People's Money. These are three words that all operators in this field must bear constantly in mind."
ASIC Commissioner Greg Tanzer said, "His Honour's comments should remind anyone acting as a responsible entity of their important obligations. Every responsible entity must remember they can not outsource their legal obligations and must closely monitor any external service providers."
Read the judgement, which also annexes the parties' joint submissions.