ASIC has released updated Regulatory Guide 134 (Managed investments: Constitutions) (RG134) which sets out ASIC guidance in relation to the content requirements for registered scheme constitutions. RG134 significantly expands previous ASIC guidance on constitutional provisions which are required to be included in scheme constitutions to comply with the Corporations Act 2001 (Cth) (Corporations Act). The regulatory guide can be found here.
ASIC will apply the new RG134 in assessing all new constitutions lodged after 1 October 2013.
Contrary to the position ASIC expressed in its Consultation Paper 188 on managed investment scheme constitutions, ASIC will not require responsible entities to amend existing constitutions to comply with new RG134. ASIC have stated that they will take a no-action position against existing fund constitutions, provided the constitutions comply with the previous RG134.
Key requirements of RG134
RG134 provides detailed guidance as to how ASIC will assess whether fund constitutions contain provisions which make adequate provision for the consideration to acquire an interest in the scheme. ASIC has released a new Class Order (CO 13/655) containing constitutional provisions that provides a safe harbour which responsible entities may rely upon when registering scheme constitutions with ASIC. ASIC has stated that responsible entities which do not rely on the class order should apply to ASIC for a review of draft provisions prior to formally lodging its constitution for registration. RG134 also limits the discretions that a responsible entity may exercise in calculating the consideration and the records which are required to be kept in relation to any exercise of discretion.
RG134 also contains detailed guidance as to how ASIC will assess fund constitutions for compliance with the other requirements in sections 601GA and 601GB in the Corporations Act in relation to specifying:
the powers and rights of the responsible entity, including its rights to be paid fees and be indemnified from scheme assets;
complaints handling procedures for retail and wholesale clients;
withdrawal right provisions; and
key steps which must be specified in the winding up provisions for a scheme.
New registered schemes
After 1 October 2013, responsible entities considering registering new schemes will need to gain an understanding of RG134 and, if in doubt, should commence consultations with ASIC to ensure the constitution will be approved in the 14 day registration period. In particular, if provisions regarding the consideration to acquire an interest do not fall within the class order relief, responsible entities will need to seek ASIC review and approval of draft constitution provisions.
Existing registered schemes
Although ASIC will not take action in relation to existing scheme constitutions, provided that the constitutions satisfy the previous version of RG 134, the policy position taken by ASIC in the new RG 134 may affect how courts interpret the Corporations Act in determining whether a scheme constitution meets the requirements of the Corporations Act. There is a risk that scheme members may seek to bring actions against the responsible entity, based on the new interpretation of sections 601GA and 601GB contained in the updated RG 134. It may be prudent for responsible entities to review their existing constitutions to assess whether any amendments may nevertheless be required.
This article was prepared with the assistance of Jiayue Li, Lawyer.