Chapter 2: Investor
Members' rights to
remove and replace the responsible entity
Changes of a scheme's RE should be effective only if
made in accordance with Division 2 of Part 5C.2, and provisions of a scheme's
constitution relating to the removal and replacement of a scheme's RE should
not override the legislation in any circumstances.
For unlisted schemes, the current requirement for an
extraordinary resolution to remove or appoint a RE should be replaced with either
(but not both) of the following two alternatives:
resolution (that is, 75 per cent of the votes cast at a meeting); or
resolution with the added requirement that the votes cast in favour of that
resolution must constitute at least 25 per cent of the total votes of scheme
Further consultation should take place on which of these
alternatives would be preferable.
For listed schemes, the legislation should clarify that
the appointment or removal of a RE requires an ordinary resolution.
qualifications for temporary responsible entities
Official liquidators should be included as entities which
can be temporary REs to widen the pool of suitable candidates and lessen delays
in the appointment of temporary REs.
of scheme property
ASIC should have administrative powers to make binding
orders for the protection of scheme property. ASIC should be able to exercise
these powers at any time following the revocation or cancellation of a RE's
licence, or the removal of a RE (whether by members or ASIC), and pending the
appointment of a temporary RE.
ASIC should have powers to:
remove a constitutional provision; and
a provision to be inserted into a constitution,
only to the extent needed to ensure that the constitution
would comply with any applicable law.
The legislation should be amended to provide that the
constitution of a scheme:
contain a provision that is contrary to or inconsistent with any applicable
(excluding any unlawful provisions) between the members and the RE by virtue
of the Corporations Act.
Section 601 GA should:
to remove any ambiguity pertaining to the payment of fees or a right to an indemnity
claimed by a RE. This includes the clear application of `in relation to the
performance of its duties' to both `rights to be paid fees out of scheme property'
and to `be indemnified out of scheme property for liabilities or expenses incurred';
prohibit the payment of fees or a right to an indemnity where the timing of
payment or the entitlement is linked to a change in the RE;
that payment of fees or a right to an indemnity cannot be claimed in advance
of a RE's proper performance of its duties; and
any person other than the RE having any right in respect of scheme property
or against members for fees or an entitlement to an indemnity for services provided
to the scheme.
rights to call general meetings
Provision should be made in the legislation for members
to request the RE of a registered scheme to call a general meeting. The amendment
could be based on section 249D which applies to the calling of general meetings
by directors of a company on the request of members.
REs should be required to inform members in their schemes'
annual reports of members' rights to requisition meetings.
rights of scheme members
ASIC should have a discretion to vary the voting rights
of members of schemes where it is intended by the scheme that members' voting
rights will not be proportionate to their capital contributions.
should be drafted so as to ensure that the protection of scheme members and
the ability of the RE to properly perform its duties will not be compromised.
rights to withdraw from schemes
The types of contracts which are voidable at the option
of the person who acquires an interest in a managed investment scheme should
be extended to include contracts involving those sales in section 707 which
and experience of compliance committee members
Standards should be developed relating to the qualifications
and experience required by compliance committee members. This should be effected
through consultation between ASIC and the industry, and draw on existing work
of bodies such as the ICCMF and ACPA.
removal and retirement of compliance committee members
ASIC, and members of a managed investment scheme, should
be made aware of the identity of compliance committee members. To this end,
REs should be required to inform ASIC and scheme members of the current composition
of compliance committees, and when members of a compliance committee are appointed
or removed, or when they retire.
Notification to ASIC should be based on existing requirements
relating to company directors. In the case of notifying members, it would be
acceptable for the annual report to disclose any changes to the membership of
the compliance committee that have occurred since the last report.
ASIC should have the power to remove a person from a
compliance committee where ASIC forms the view that the person is not adequately
performing the duties required of a compliance committee member, or where it
is otherwise inappropriate for the person to continue to serve on the committee.
The power should cover not only temporary suspension, but also permanent banning,
subject to ASIC's decision being administratively reviewable.
board of the responsible entity
The requirements in Chapter 5C covering the content of
compliance plans in relation to the compliance committee, and the provisions
setting out the functions of the compliance committee should be applied, with
appropriate modifications, to the board of the RE, where there is no compliance
of provisions by reference into compliance plans and constitutions
601HB, relating to the incorporation of provisions from one scheme compliance
plan into another, should be amended to incorporate the changes currently provided
for in ASIC Class Order 98/50.
allowing for the incorporation of provisions from one scheme constitution into
another should be inserted into the legislation, along the lines of section 601HB
(with the amendment suggested above).
provisions should allow for incorporation of provisions from compliance plans
and constitutions that do not relate to a particular scheme - that is, `model'
compliance plans and constitutions lodged with ASIC, subject to ensuring that
REs continue to monitor the appropriateness and adequacy of compliance plans
and constitutions on an individual scheme basis, and scheme members have adequate
access to consolidated copies of compliance plans and constitutions.
601GC(4) should specify that members may request and receive a consolidated
copy of a scheme's constitution from the RE, and a similar right should be given
to members to request and receive a copy of a scheme's compliance plan.
in paragraph 601FC(1)(d) that members holding interests of the same class be
treated equally should be replaced with a requirement that such members be treated
fairly, in respect of the charging of differential fees, subject to the requirement
that investors are provided with adequate disclosure to allow them to compare
the effect of differential fee arrangements.
consideration should be given to whether there is also a need for the fairness
`test' to be interpreted by reference to some other criterion such as economic
justification, and whether any interpretational material supporting the fairness
test should be located in legislation or in ASIC policy.
registration - registering multiple trusts/schemes as a single scheme
Section 601ED relating to scheme registration should
be amended to provide that where an applicant seeks to register more than one
trust or scheme as a single scheme, ASIC may determine in writing that each
trust or scheme must be registered separately.
memorandum accompanying this change should make clear that ASIC will exercise
this discretion based on the degree of interdependence and economic relationship
between the trusts or schemes;
issue policy guidance as to how it will exercise this discretion; and
should be subject to review by the Administrative Appeals Tribunal.
5: Other law reform proposals
The following amendments should be made to the Corporations
Act and Regulations:
Amend subsection 601JB(3)
to insert `and paragraph 4(a)' after `(2)(a)';
Amend subsection 601JB(4)
to insert `or a related body corporate' after `responsible entity';
section 601JE to apply to former compliance committee members;
205G to require disclosure by the directors of a RE of a listed scheme equivalent
to disclosure required of directors of a listed company;
definition of managed investment scheme to exclude class actions and
costs paid for legal proceedings;
definition of scheme property to clarify when property ceases to be scheme
115 so that it does not apply to registered managed investment schemes;
349 to impose a requirement that the value of scheme property be disclosed in
the annual return, and to remove the requirement to identify the top 20 interest
holders, and the total number of interests they hold, so far as it relates to
members of IDPS-like schemes or, alternatively provide ASIC with discretion
to determine an approved form for the annual return;
Amend paragraph 601A(1)(a)
to resolve the uncertainty regarding its ambit (namely, that it is wide enough
to support ASIC's policy requirement for an independently verifiable price);
regulations 5C.2.02, 5C.4.01, 5C.4.02, 5C.5.01 and 5C.11.06 (with certain
modifications) into Chapter 5C, and repeal regulation 5C.11.05A.