It is common to see in a constitution for a registered scheme a general power in similar terms to the following:

“The responsible entity shall have all the powers in respect of the Scheme that is legally possible for a natural person or corporation to have and as though it were the absolute owner of the scheme property and acting in its personal capacity”.

One would think that this is a very wide power.

However the Full Federal Court has upheld an appeal by ASIC from a single judge who had interpreted this power in the wide terms that it was no doubt intended to convey. The Full Court held that such a power is not sufficient to give a responsible entity the power to appropriate assets which are scheme property in specie in satisfaction of a member’s entitlement to income or capital of the Scheme. Further to do so may constitute a partial winding up of the Scheme although the Court did say it was not necessary for it to decide that issue.

In this case the responsible entity had transferred scheme property to an unlisted public company in return for issue of shares in that company. The responsible entity then distributed the shares in that company to the members of the scheme proportionately to their unit holding in the scheme.

The Full Court said that the above provision must be read through the prism of trust law. Relying on a statement in Heydon JD and Leeming MJ, Jacobs’ Law of Trusts in Australia (7th ed, LexisNexis Butterworths, 2006) at [1704], [2308] the Full Court held that a trustee cannot transfer the trust property to the beneficiaries without their consent and therefore likewise a responsible entity cannot transfer scheme property to the members without their consent.

Further section 231 of the Corporations Act, 2001 requires that for a person to become a member of a company, he or she must agree to do so. The judge at first instance had found that there was sufficient assent by the members of the scheme because when the members became members on the issuing of the units following their application to do so they were taken to be bound by the scheme and accordingly must be taken to have assented to becoming members of the company on the in specie distribution of shares in that company to the members in accordance with the exercise of power by the responsible entity as authorised by the constitution. However the Full Court did not need to decide this issue because they had held that the constitution did not empower the in specie distribution in the first place.

Therefore if a responsible entity wishes to have the power to appropriate assets in specie without the consent of members of the scheme there will need to be a specific power to do so contained in the constitution.