Frozen funds – Information for responsible entities

This information sheet (INFO 249) is for responsible entities of registered managed investment schemes (registered schemes) that have become 'frozen funds'. It provides information on:

We encourage you to seek the relief that is appropriate for your particular scheme's circumstances.

It also sets out information on the compliance obligations for frozen funds.

Frozen funds have suspended withdrawals for members

A registered scheme becomes a 'frozen fund' when the responsible entity suspends or cancels the ability of investors (i.e. members) to withdraw from the scheme.

A registered scheme may face liquidity or other operational issues and freeze due to an external event (e.g. the COVID-19 pandemic) or other factors. Freezing withdrawals can be in the best interests of members.

We encourage you to engage with ASIC on liquidity issues and to notify ASIC as soon as practicable if a scheme you operate becomes frozen. You can contact ASIC by sending an email to investment.managers@asic.gov.au.

ASIC regulates and provides relief to frozen funds

Our role includes:

  • exercising ASIC's powers to modify the law, where appropriate, to enable members’ to access their money
  • investigating complaints and allegations of unlawful activity against responsible entities.

Hardship relief for frozen funds is available through a legislative instrument

We have issued ASIC Corporations (Hardship Withdrawals Relief) Instrument 2020/778 to provide hardship relief to frozen funds that meet certain conditions. The relief is available to both liquid or illiquid frozen funds (as defined under section 601KA of the Corporations Act 2001 (Corporations Act)).

To be eligible for the relief, the responsible entity of the scheme must have:

  • suspended or cancelled withdrawals
  • ceased to allow the issue of new interests in the scheme (including distribution reinvestments and issues to existing members).

The purpose of the hardship relief is to ease the statutory restrictions placed on responsible entities and help members suffering hardship withdraw from a frozen fund, while balancing the interests of remaining members and the interests of members suffering hardship.

Relief to allow selective withdrawals for members suffering hardship

The instrument provides relief to responsible entities in relation to:

  • the duty to treat members of the same class equally (see section 601FC(1)(d) of the Corporations Act)
  • the withdrawal regime in Part 5C.6 of the Corporations Act, by introducing a new hardship withdrawal regime.

Responsible entities need relief from the Corporations Act to allow selective withdrawals just for members suffering hardship. If a responsible entity of a frozen fund allows hardship withdrawals without relief, this will constitute a breach of the Corporations Act. We may take action for non-compliance.

Responsible entities must submit a notice of reliance and a notice of cessation of reliance to ASIC

How to submit a notice of reliance

If you wish to rely on the relief in the instrument, before you can grant a hardship withdrawal to a member, you must first submit a notice that you are relying on the instrument (notice of reliance) to ASIC for each frozen fund you operate. You must email the notice of reliance to investment.managers@asic.gov.au.

There is no prescribed form for the notice of reliance. At a minimum, your e-mail should include:

  • the name and Australian Company Number (ACN) of the responsible entity
  • the name and Australian Registered Scheme Number (ARSN) of the scheme
  • the date the scheme became frozen
  • a brief description of why the scheme became frozen (e.g. due to the COVID-19 pandemic).

With the notice of reliance, you must include a statement, signed by a director or secretary of the responsible entity, that the board of the responsible entity has resolved that:

  • the scheme has suspended or cancelled withdrawals and ceased to allow the issue of new interests in the scheme
  • it has considered the expected hardship withdrawals and believes on reasonable grounds that the scheme property will include adequate cash over the following six months to meet hardship withdrawals from members and continue the day-to-day operations of the scheme.

You must also publish a statement that you are relying on the relief (and the effect of the relief) on your website and send that statement to all members directly. You can notify members at the same time you notify them about changes to the scheme constitution.

Once we receive your notice of reliance, we will confirm receipt. Unless you object, we will include your details in the public list of frozen funds whose responsible entities are relying on the instrument.

For a list of frozen funds whose responsible entities are relying on the instrument, see Appendix A.

How to submit a notice of cessation of reliance

If a scheme you operate ceases to be frozen, you will no longer meet the eligibility criteria for the relief. You must submit a notice that you are ceasing to rely on the instrument (notice of cessation of reliance) for that scheme to ASIC. You must email the notice of cessation of reliance to investment.managers@asic.gov.au.

There is no prescribed form for the notice of cessation of reliance. At a minimum your e-mail should include:

  • the name and ACN of the responsible entity
  • the name and ARSN of the scheme
  • the date the scheme ceased to be frozen.

If the scheme later becomes frozen again and you wish to rely on the relief, you will need to submit a new notice of reliance to ASIC.

Responsible entities must report quarterly

If you are relying on the relief, you must report data to ASIC each quarter (i.e. 1 January to 31 March, 1 April to 30 June, 1 July to 30 September and 1 October to 31 December). We will use the data for monitoring and reporting purposes, and to inform our regulatory approach.

To comply with your reporting obligation, you must:

  • submit the data required under the relief. We have provided a template spreadsheet for you to complete each quarter in accordance the instructions provided in that spreadsheet. You may have no data to report for a quarter (e.g. because you have submitted a notice of reliance with ASIC but have not yet amended the constitution for the scheme or received a hardship withdrawal request). Even if this is the case, you must still submit data, and answer with zeros as applicable
  • submit the data to ASIC within 14 calendar days of the end of each quarter. You must email the data to investment.managers@asic.gov.au.

Members must meet hardship criteria and adhere to caps on withdrawals

If you rely on the relief, you will be able to grant hardship withdrawals to members at your discretion. However, the member must meet at least one of the hardship criteria set out in Table 1 below.

In assessing a hardship request, we expect you to consider whether the member satisfies any one of the hardship criteria (even if the member has nominated only a particular criterion in their request).

The maximum amount a member can withdraw is capped at $100,000 per calendar year. You can grant a member four hardship withdrawals per calendar year.

Table 1: Hardship criteria members must meet for a hardship withdrawal

Type of hardship

Hardship criteria

Urgent financial hardship

The member needs the amount requested to meet reasonable and immediate living expenses for themselves or their dependants.

Unemployment

The member has not been in gainful employment for at least three months and has no other means of financial support (except government assistance, such as unemployment benefits).

Compassionate grounds

The member (or their dependant, as applicable) needs the amount requested to:

  • pay for medical costs (including related transport costs) to treat a life-threatening illness or injury, to alleviate acute or chronic pain, or to alleviate an acute or chronic mental disturbance. A medical practitioner must provide a certified statement confirming the medical condition
  • pay for specific modifications to a principal place of residence or vehicle to accommodate a severe disability of the person or their dependant
  • pay for funeral expenses and other expenses related to the death of the member or their dependant
  • enable the member to provide care for another person who is dying from a terminal illness, including home care
  • prevent the member’s mortgagee (lender) from selling the person’s principal place of residence, or
  • meet a binding financial obligation entered into by the member before the responsible entity suspended withdrawals.

The member or their dependant must not otherwise have the financial capacity to meet the expense.

Permanent incapacity

The member has ceased gainful employment due to mental or physical ill health. You are satisfied that the member is unlikely to ever again commence the type of employment for which they are reasonably qualified by education, training or experience.

Scheme constitutions must allow hardship withdrawals for members

To rely on the hardship relief, the scheme constitution must expressly include provisions to allow hardship withdrawals for members. You will need to amend the constitution to include hardship withdrawal provisions if the constitution does not already include these. You are not able to rely on generic provisions in the scheme constitution to comply with the relief – for example, a blanket right to withdraw in accordance with the Corporations Act, or overarching provisions that purport to incorporate the requirements of a legislative instrument.

At a minimum, we expect the scheme constitution to outline:

  • the ability of a member to withdraw on hardship grounds
  • the discretion that you have to decide whether to allow or refuse the hardship request
  • the discretion that you have to decide whether to satisfy the hardship request in whole or in part.

Note: While you can include in the constitution a discretion to accept a hardship request (including in whole or in part), you must exercise this discretion within certain bounds. You must act reasonably when exercising the discretion. You will also remain bound by your duties, including to act in the best interests of members (see s601FC(1)(d)), and the terms of the relief.

You are not required to replicate the content of the instrument in the scheme constitution.

To help you make these constitutional changes, the instrument provides relief from the requirement that a special resolution of members must approve a constitutional change (under s601GC(1)(a)). You will be allowed to change the scheme’s constitution unilaterally to include provisions for members to withdraw on hardship grounds. However, if you receive requests to hold a meeting from members with at least 5% of the votes that may be cast, you must hold the meeting. You may make the changes to the scheme constitution either before submitting a notice of reliance to ASIC or once you have submitted your notification.

You must notify members of the proposed amendment to the constitution (including the reasons for and effect of the changes). You must publish the notification on the scheme website and contact each member directly. Members must have the opportunity to request a members’ meeting (i.e. members must have at least 14 calendar days notice of your intention to amend the constitution).

Individual hardship relief for frozen funds is available on application

If you are not able to rely on ASIC Corporations (Hardship Withdrawals Relief) Instrument 2020/778, you can apply for individual hardship relief, which we will decide on a case-by-case basis. See our guidance on how to submit a relief application to ASIC below.

We have provided more information on the individual relief and the relief application process in Section C of Regulatory Guide 136 Funds management: Discretionary powers (RG 136). If we grant you individual hardship relief, you will also need to report data quarterly.

For a list of frozen funds whose responsible entities we have granted individual hardship relief, see Appendix B.

Individual 'rolling' withdrawal relief for illiquid registered schemes is available on application

Rolling withdrawal relief is available to responsible entities of registered schemes that are illiquid (as defined in section 601KA). The purpose of rolling withdrawal relief is to allow responsible entities of illiquid schemes to provide all members with periodic withdrawal opportunities with administrative ease.

We will grant rolling withdrawal relief to responsible entities on a case-by-case basis. See our guidance on how to submit a relief application to ASIC below. We have provided more information on the individual rolling withdrawal relief and the relief application process in Section C of RG 136.

The relief modifies the withdrawal regime in Part 5C.6 of the Corporations Act, which otherwise requires you to:

  •  lodge a copy of each withdrawal offer with ASIC (section 601KB(5))
  • have only one withdrawal offer open at any time (section 601KC)
  • include certain information in the withdrawal offer (section 601KB(3)).

The relief allows you to make a rolling withdrawal offer to members. Under a rolling withdrawal offer:

  • the offer must be open for a calendar year to all members in the scheme
  • you nominate the dates on which the withdrawal offer will be paid (e.g. at the end of each quarter)
  • a member may lodge a withdrawal request at any time, including a standing request to participate in any future withdrawal opportunities during the year (e.g. if a member lodges a standing withdrawal request on 1 April, that member can participate pro-rata in the next quarterly withdrawal opportunity in June and subsequent quarterly withdrawal opportunities).

For a list of responsible entities we have granted rolling withdrawal relief, see Appendix C.

Submit your application for individual hardship or rolling withdrawal relief to ASIC

If you are seeking individual hardship or rolling withdrawal relief, you must submit a relief application to ASIC. You will need to submit the application through the ASIC Regulatory Portal, using the transaction named ‘Apply for an ASIC exemption, declaration or order’.

For more information, see how to apply for relief and Regulatory Guide 51 Applications for relief (RG 51).

Compliance obligations apply to frozen funds

The responsible entity of a frozen fund is subject to legal and compliance requirements under the Corporations Act. These include your obligations under Chapter 5C, your Australian financial services (AFS) licensee obligations under Chapter 7, and the conditions of your AFS licence.

Responsible entities and their officers owe duties to members of the registered schemes that they operate: see sections 601FC and 601FD. In particular, you must exercise your powers and carry out your duties in the best interests of the members. If there is a conflict between the members' interests and those of the responsible entity, you must give priority to the interests of the members.

The board and management of the responsible entity must decide whether to:

  • freeze a registered scheme
  • rely on ASIC relief
  • satisfy a hardship withdrawal request under the hardship relief, and/or
  • make withdrawal offers.

They must consider the duties they owe to members under the Corporations Act when they make these decisions. They must also ensure compliance with the scheme constitution and any ASIC relief.

The hardship relief provides you with specific relief from the duty to treat members of the same class equally, so that you can provide hardship withdrawals. However, this does not provide wider relief from your ongoing duties under the Corporations Act.

You should monitor the position of the frozen fund. You should consider whether options such as restructuring or winding up the scheme are in the best interests of the members.

We may take action where compliance issues are identified. This can include administrative action (e.g. revoking the relief or suspending or cancelling your AFS licence) or civil or criminal action.

Appendices

We have listed the responsible entities that are relying on our relief in the appendices to this information sheet:

  • Appendix A – A list of the frozen funds whose responsible entities are relying on the relief in ASIC Corporations (Hardship Withdrawals Relief) Instrument 2020/778
  • Appendix B – A list of the frozen funds whose responsible entities we have granted individual hardship relief
  • Appendix C – A list of the registered schemes whose responsible entities we have granted rolling withdrawal relief.

Where can I find more information?

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Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.

This is Information Sheet 249 (INFO 249), issued in August 2020.

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Last updated: 26/08/2020 12:00