ASIC today released a consultation paper proposing to remake a class order in relation to mortgage schemes, which is currently due to expire (‘sunset’) on 1 October 2017.
ASIC proposes to remake without significant changes the relief under Class Order [02/238] Mortgage Schemes: Chapter 5C and disclosure relief. Class Order [CO 02/238] provides five separate forms of relief in relation to certain mortgage investment schemes. In summary, it provides:
- various relief for certain small-scale schemes with no more than 20 members;
- scheme registration relief in relation to individual mortgages in a scheme;
- scheme registration relief for small, ‘industry-supervised’ schemes;
- transitional scheme registration relief for ‘run-out’ schemes; and
- withdrawal-related relief for individual mortgages in a scheme.
ASIC considers this instrument is operating effectively and efficiently and continues to form a necessary and useful part of the legislative framework. ASIC proposes to not remake transitional ‘run-out’ relief, which was provided to allow for certain schemes to be brought to an end following the introduction of the Managed Investments Act.
In remaking the relief under [CO 02/238], ASIC proposes to temporarily extend the relief currently given in relation to small, industry-supervised schemes in order to allow for a future review of whether the relief is operating effectively and efficiently in light of the position under the Legal Profession Uniform Law on the promotion and operation of managed investment schemes by law practices from 1 July 2018.
ASIC has made a number of changes to the instrument to reflect current drafting practice, including updates to terminology to give greater clarity and accuracy.
ASIC also seeks feedback on whether relief should be granted to allow for multiple withdrawal periods for registered schemes.
Consultation Paper 287 Remaking ASIC class order on mortgage schemes and proposed relief for multiple withdrawal periods (CP 287) outlines ASIC’s proposals in more detail.
Submissions on CP 287 are due by 4 August 2017.
Sunsetting class orders
Under the Legislation Act 2003, all class orders are repealed automatically or ‘sunset’ after a specified period of time (mostly 10 years) unless we take action to exempt or preserve them. This ensures that legislative instruments like class orders are kept up to date and only remain in force while they are fit for purpose and relevant.
All government organisations are responsible for considering whether the legislative instruments they have made that are due to sunset will be relevant after their sunset date.
Relief for multiple withdrawal periods
Some registered scheme constitutions have provision for different withdrawal periods to operate in relation to different interests at the one time but it is not clear that this is consistent with the requirements of the Corporations Act 2001 (Corporations Act) that require a test of whether an asset is a liquid asset by reference to a withdrawal period for the scheme.
As outlined in Consultation Paper 84 Managed investment schemes: Withdrawal rights and scheme liquidly, ASIC currently takes a no action position on constitutions that provide for multiple withdrawal periods. This no-action position only applies in relation to a scheme if the responsible entity determines scheme liquidity on the basis that the shortest withdrawal period is the relevant withdrawal period for the purposes of the liquidity test in section 601KA of the Corporations Act.
© Australian Securities & Investments Commission. Reproduced with permission.