There continues to exist many forms of managed investment schemes in the agribusiness sector. In recent years many schemes - not the least agribusiness schemes - have been unable to maintain or achieve the results, or derive those member benefits, that were contemplated at the time of the scheme’s establishment. For those registered schemes finding it difficult to achieve their stated objectives or derive profitable or satisfactory results for their members, each of the scheme’s members and the Responsible Entity are empowered to bring the scheme to an early conclusion.
A registered managed investment scheme will ordinarily be brought to its natural conclusion upon the passing of a particular date or the happening of a specified event in the scheme’s constitution. There does exist, however, mechanisms for both the members of the scheme, and in some situations the Responsible Entity, to statutorily force the early termination of the scheme.
The Corporations Act 2001 (cth) (the Act) governs the early winding-up of registered managed investment schemes. The Act, in summary, provides three separate mechanisms and vests such powers in three separate bodies, namely: the members of the scheme; the Court; and perhaps the lesser known, Responsible Entity of the scheme itself.
1. Early Wind-up by Members
Members of a registered managed investment scheme may take action by calling a members’ meeting to consider and vote on a resolution directing the Responsible Entity to wind-up the scheme.
Similarly, the Responsible Entity may convene a members’ meeting at which a winding-up resolution may be proposed. This is an alternative to the Responsible Entity’s ability to apply to the Court or itself resolve to wind-up the scheme.
In order for the resolution to be passed, at least 50% of the total votes that may be cast by members entitled to vote on resolutions (including members who are not present in person or by proxy) must be in favour of the winding-up.
In so far as what the future may hold for member initiated wind-ups, the Corporations and Market Advisory Committee (CAMAC) in its 2012 report titled “Managed Investment Schemes” suggest that the voting threshold required to pass an extraordinary resolution is too prohibitive in the circumstances. CAMAC has recommended that the voting threshold under the Act be reduced to a dual threshold of 50% in attendance (including by proxy) representing at least 25% of the total votes that may be cast by members entitled to vote on resolutions.
2. Early Wind-up by the Responsible Entity
The Act provides that the Responsible Entity may, without having been so directed by the members of the scheme, take steps to have the scheme wound up on the basis that either the scheme’s purpose has been accomplished or, alternatively, that the Scheme’s purpose cannot be accomplished.
Both identifying a scheme’s purpose in the first instance and then ascertaining whether or not the same has or cannot be accomplished, is a matter of context and circumstances.
Should a Responsible Entity wish to wind-up the scheme on such a basis, it is required to write to all members detailing the proposal and the basis upon which it has concluded that the scheme’s purpose has been or cannot be accomplished. Upon receiving such notice, members will have 28 days within which to themselves call, or alternatively request that the Responsible Entity call, a meeting to consider and vote on the proposed winding-up of the scheme. If no meeting is called within that period the Responsible Entity may wind up the scheme.
If a meeting is validly requisitioned, the members themselves are required to put forward the resolutions to be voted upon at that meeting. It remains incumbent on the members to put forward and pass by extraordinary resolution any alternate proposal to that proposed by the Responsible Entity with regard to the wind-up or continuation of the scheme. Subject to any such member resolutions, the Responsible Entity is entitled to proceed with the winding up.
3. Early Wind-up ordered by the Court
The final method of early termination discussed in this article is that by order of the Court. Either of the Responsible Entity, a single director of the Responsible Entity, a member of the scheme or ASIC may petition the Court for an order compelling the Responsible Entity to wind-up the scheme prematurely. The Court may make such an order where it is “just and equitable” to do so. Without limiting the interpretation of such a generic term, such instances where the Courts have determined there to exist “just and equitable” grounds for early termination include the scheme being insolvent, it being untenable for the scheme to continue in its current state or the Responsible Entity being insolvent - such that it can not continue to perform its functions and no replacement Responsible Entity can be found.
4. The wind-up process itself
The wind-up process itself may be conducted by the Responsible Entity in accordance with the scheme’s constitution and the Act. The costly and time consuming exercise of appointing an external administrator and liquidator need not occur and the Court will only intervene in circumstances where it considers it necessary to do so.
CAMAC have recommended that the wind-up process be aligned with more formal corporate wind-ups by requiring that an external liquidator be appointed to conduct the wind-up of an insolvent scheme. It is unknown at this stage if, when and to what extent the Act may be amended to reflect CAMAC’s recommendations, however, at this point in time there remains a great deal of flexibility.