• ASIC has released its update of Regulatory Guide 134 in relation to constitutions of registered schemes.
  • Schemes registered before 1 October 2013 will not be required to comply with the updated guidance.
  • The updated guidance will apply to constitutions lodged for scheme registration from 1 October 2013.


ASIC has released its update of Regulatory Guide 134 Managed Investments: Constitutions (RG 134). This follows the release of ASIC’s Consultation Paper 188 (CP 188) in September 2012.

ASIC has also released the following new class orders in conjunction with the updated RG 134:

  • [CO 13/655] Provisions about the amount of consideration to acquire interests and withdrawal amounts not covered by [CO 05/26] (Class Order 13/655)
  • [CO 13/656] Equality of treatment impacting on the acquisition of interests (Class Order 13/656), and
  • [CO 13/657] Discretions affecting the amount of consideration to acquire interests and withdrawal amounts (Class Order 13/657).

Timing for implementation

In welcome news for responsible entities (REs), ASIC will not require REs of schemes registered before 1 October 2013 to amend the constitutions of those schemes to comply with the updated RG 134. ASIC expects the constitutions of these schemes to comply with the previous version of RG 134.

ASIC will apply the updated RG 134 when assessing constitutions lodged as part of an application to register a scheme from 1 October 2013.

Unit pricing relief

Class Order 13/655 relates to provisions in constitutions that give the RE unit pricing discretion. It applies to schemes registered after 30 September 2013 and includes relief, amongst other things, in relation to placements, rights issues, interest purchase plans and distribution reinvestment plants. The relief is less prescriptive than the earlier relief under ASIC Class Order [05/26] (Class Order 05/26) and does away with a number of the conditions under the earlier relief.

Schemes registered before 1 October 2013 that rely on Class Order 05/26 can continue  to do so. Alternatively, the RE of such a scheme can rely on Class Order 13/655 by publishing and maintaining a notice on its website that it relies on that instrument. However, the RE should review the scheme’s constitution to ensure that this would be within the terms of the constitution.

Class Order 13/657 applies to the new unit pricing relief under Class Order 13/655 and  imposes various duties on REs, including in relation to documenting the exercise of unit pricing discretions.

Class Order 13/656 provides relief from the equal treatment duty in a range of circumstances, including for foreign offers of interests and to enable a RE to treat wholesale clients differently when dealing with complaints.

ASIC has flagged there may be alternative means of meeting the Corporations Act requirements relating to the issue price for schemes and encourages anyone wishing to register a scheme that does not rely on the new relief or proposes to include provisions giving a discretion about timing that affects the issue price, to submit a draft of the relevant provisions before lodging the scheme registration application.

Powers, fees and expenses

REs have the flexibility to determine the level of detail to include about their powers, taking into account the particular scheme.

RG 134 provides that a constitution should expressly state that any rights to be paid fees or to be indemnified for liabilities or expenses out of scheme property are subject to the proper performance by the RE of its duties or include a provision that has the effect of incorporating this restriction.

ASIC considers a constitution should clearly identify the time at which a fee accrues, the performance to which it relates and each variable affecting the amount of the fee that is payable. If a fee is calculated at a variable rate with reference to a benchmark index, ASIC expects REs to use an index that is similar to the type of scheme to be operated.

ASIC also considers provisions purporting to indemnify the RE from scheme property ‘at an hourly rate’ or ‘on standard commercial terms’ are better characterised as fees.

Complaints handling

RG 134 provides that:

  • if a scheme is open to retail clients, a constitution can comply with the Corporations Act by containing a provision that the RE, as an AFS licensee, will comply with the dispute resolution requirements under section 912A(2) of the Act for retail clients;
  • if a scheme is open to wholesale clients, the RE can devise its own complaints handling procedures for wholesale clients; and
  • if a scheme is only open to retail clients or wholesale clients and the RE relies on this in the dispute resolution clauses, the constitution would need to restrict the issue of interests in the scheme to these clients.

ASIC had initially proposed in CP 188 that for retail clients, constitutions should adopt the same dispute handling procedures applicable to an AFS licensee under section 912A(2) of the Corporations Act.

ASIC noted the concern that failing to comply with such requirements could give rise to a breach of the constitution and have civil and criminal consequences for officers. REs can choose not to include such a provision for retail clients. However, in ASIC Report 347, ASIC states that where a RE includes its own complaints handling provisions for retail clients, they should be consistent with ASIC Regulatory Guide 165 Licensing: Internal and external dispute resolution.

Withdrawal rights

RG 134 provides that a constitution should address the following key aspects of the withdrawal process:

  • how the right is triggered, including the steps that a member has to take and any pre-requisites that need to be satisfied;
  • any amount that is to be paid or given to members, including:
    • the withdrawal price;
    • when the amount is paid to members and the maximum period after withdrawal; and
    • the nature of the amount and how non-monetary assets are valued;
    • restrictions on dealing with withdrawal requests; and
    • ceasing to be a member.

ASIC believes that constitutions should not include provisions treating withdrawing members as having ceased to be a member before the time scheme property is valued for the purposes of calculating the withdrawal price and that constitutions should only permit withdrawals in accordance with the procedures applicable to liquid schemes if the scheme is liquid at the time the scheme property is valued for the purposes of calculating the withdrawal price.

ASIC also considers that a provision allowing members to make a withdrawal request from time to time, rather than in response to an offer, is not a withdrawal request envisaged under Part 5C.6 of the Act for non-liquid schemes.

Winding up

RG 134 now requires that a constitution should address the following key aspects of the winding up process:

  • how assets, liabilities and scheme property are dealt with;
  • distribution of the proceeds of winding up;
  • the costs of winding up; and
  • any payments to maximise proceeds of winding up.

ASIC had proposed in CP 188 that constitutions address the scenario if the RE and/ or scheme becomes insolvent but this is not required under RG 134. ASIC encourages contract-based schemes to include such provisions.

Constitutions are still required to include a provision for an independent audit of the final accounts after the relevant scheme is wound up.

Legal enforceability

ASIC considers the form of constitution will determine how it needs to be drafted and executed to be legally enforceable and that constitutions should expressly bind the RE and the members from time to time.

ASIC encourages the use of severance clauses providing that any provision of the constitution which is inconsistent with the Corporations Act will be of no effect. Constitutions which do not contain such a provision may be subject to closer scrutiny by ASIC.

Incorporation by reference

ASIC considers that making provisions in the constitution under s601GA of the Corporations Act subject to other documents that may affect these provisions means that the constitution does not ‘make adequate provision for’ or ‘specify’ the matters required by s601GA.

What steps should REs take?

REs should consider the following:

  • REs registering schemes on or after 1 October 2013 should ensure that the constitutions meet the requirements under new RG 134. This may require some drafting changes as compared to existing forms of constitutions adopted by REs.
  • REs should consider whether any changes to constitutions will require any changes to the RE’s processes or scheme documents such as compliance plans.
  • REs of existing schemes should consider whether or not to rely on new Class Order 13/655 in relation to unit pricing relief (instead of the relief under Class Order 05/26) but any RE wishing to do so should review the relevant constitutions to ensure this option is available.
  • For new schemes registered on or after 1 October 2013 or for which the RE has notified on its website that it is relying on the new unit pricing relief under Class Order 13/655, REs should ensure any relevant PDS provides that copies of documents relating to discretions about pricing of interests are available at no charge.