Most trusts investing in real estate are “managed investment schemes” (MIS) under the Corporations Act 2001 (Cth) (Corporations Act). This is because they typically involve the contribution and pooling of money for investment in a scheme to produce financial benefits (e.g. rental return) where members receive “interests” (i.e. units) in the scheme and do not have day-to-day control over the operations of the scheme.

MIS Registration

All listed REITs and some unlisted REITs will be required to be registered as a MIS under the Corporations Act.

An exception to this requirement is that a scheme will not need to be registered if, under the Corporations Act, it would be exempt from the requirement to issue a Product Disclosure Statement. This would be the case if all the investors are “wholesale clients” as defined under the Corporations Act. There are also a variety of other exemptions from registration requirement contained in the Corporations Regulations which may apply; for example, where offers are made to offshore investors.

Failure to register the MIS in breach of the requirement to register may lead to the scheme being wound up by order of the Court. Additionally the Corporations Act imposes criminal penalties of 200 penalty units (or in the case of a body corporate, 1000 penalty points) and up to 5 years imprisonment. Private or wholesale trusts may also be voluntarily registered (e.g. if the tax concessions for managed investment trusts (MITs) make this desirable).

Additional regulation

There are additional compliance and disclosure obligations for a registered scheme, as well as statutory duties and financial requirements imposed upon the responsible entity and its officers in connection with the performance of the functions conferred on it by the Corporations Act and the scheme’s constituent documents.

For example, a registered scheme must have a constitution and compliance plan which satisfies the requirements of the Corporations Act. The constitution will set out the rules by which the responsible entity will operate the scheme. It is important to ensure that the constitution includes all the powers and rights they may need to exercise in operating the scheme as subsequent amendment without member approval may be difficult.

The purpose of a compliance plan is to describe the structures, systems and processes that the RE will use to ensure that it complies with its obligations under the Corporations Act and the scheme’s constitution.

Changes to a scheme

Retirement or removal of RE

If the scheme is:

  • unlisted: requires at least 50% of total votes that may be cast by members entitled to vote (including those members who are not present) (extraordinary resolution)
  • listed: requires at least 50% of the votes actually cast by members entitled to vote present in person or by proxy (ordinary resolution).

Ordinarily the RE of a registered scheme and its associates are not entitled to vote on a resolution of the scheme if they have an interest in the resolution other than as a member.

However if the scheme is listed, the RE and its associates are entitled to vote on resolutions to remove the responsible entity and choose a new responsible entity.

Winding up registered scheme

The constitution may include a power for the scheme to be wound up at a specified time, in specified circumstances or on the happening of a specified event.

Such a specified event may include, for example, the giving of a notice by the RE to members, or a vote (typically by extraordinary resolution) of members. In addition to exercising any power under the constitution, the RE may wind up the scheme if its purpose has been accomplished or cannot be accomplished.

Constitutional changes

The constitution of a scheme may be amended by:

  • special resolution of members (requiring at least 75% of members present and voting)
  • unilaterally by the RE if the RE reasonably considers the change will not adversely affect members’ rights.