A GUIDE TO PUBLIC INVESTMENT FUNDS

Registration of Public Investment Funds in Australia

This is the first article in CNM Legal’s four-part series: A Guide to Public Investment Funds. The series provides an overview of registration, regulation, marketing and tax treatment of public investment funds in Australia. This article will discuss the topic of the registration of public investment funds in Australia, focusing on the requirements involved, the registration process, possible consequences and whether foreign funds can be registered in Australia.

Are funds that are offered to the public required to be registered?

The Corporations Act 2001 (Cth) (‘Corporations Act’) generally requires funds that are offered to ‘retail clients’ to be registered as a ‘managed investment scheme’ (‘MIS’).

An alternate type of collective investment vehicle, a ‘corporate collective investment vehicle’ (‘CCIV’), which uses a company structure limited by shares, can also be registered.  Further details about MISs and CCIVs are set out below.

MIS

A fund must be registered with ASIC as an MIS if:

  • it has more than 20 members; or
  • it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or
  • a determination is in force under which ASIC has determined that a number of managed investment schemes are closely related and must be registered when the total number of investors across all the schemes exceed 20.

However, a fund is not required to be registered if all of the issues of interests in the fund that have been made would not have required the giving of a ‘product disclosure statement’ (‘PDS’) under the Corporations Act. This exemption occurs primarily where the fund is only open for investment by ‘wholesale clients’.

CCIVs

A CCIV is a company that is limited by shares and has, as its sole director, a ‘corporate director’, which is a public company that holds an Australian financial services licence (‘AFSL’) with the appropriate authorisations to operate a CCIV.  A CCIV is required to have a constitution and at least one sub-fund that has at least one member.  A sub-fund is the vehicle through which the business and operations of the CCIV must be conducted.  All securities (either shares or debentures) issued by the CCIV must be referable to, and all assets and liabilities of the CCIV must be attributable to, a specific sub-fund.  An entity will be a member of a CCIV if it holds one or more shares in the CCIV.  Unlike the MIS regime, all CCIVs (whether retail or wholesale) must be registered with ASIC.

What does the registration process involve?

To register an MIS, it must have:

  • as trustee, a public company that holds an AFSL authorising it to operate the fund (referred to as the ‘responsible entity’ or ‘RE’);
  • a trust deed or ‘constitution’ that meets the requirements under the Corporations Act. The constitution must contain ‘adequate provision’ for specific matters, including:
    • the consideration that is to be paid for any interest in the fund;
    • the fund’s investment and borrowing powers;
    • if fund members are to be able to withdraw from the fund, the members’ rights to withdraw;
    • the procedures the RE will have for handling complaints;
    • winding up the fund; and
    • the RE’s fees and indemnity payable out of the fund property;
  • a ‘compliance plan’ that sets out what the RE will do to ensure that it complies with the Corporations Act and the fund constitution. Minimum requirements for the compliance plan include:
    • ensuring fund assets are separately identified and held;
    • arrangements for a compliance committee, if one is required;
    • how often fund property is valued;
    • auditing the compliance plan; and
    • record-keeping.

    An application for registration of a fund is made to ASIC by the RE online.  The application is required to be lodged with the fund’s constitution and compliance plan.

    ASIC must register the fund within 14 days of the application being made, unless it appears to ASIC that the RE or lodged documents do not comply with the requirements of the Corporations Act.

    Similar requirements apply for CCIVs.  All CCIVs, whether retail or wholesale, must be registered with ASIC they each require a corporate director.  The corporate director will need to lodge a constitution with ASIC, and a compliance plan must also be lodged for retail CCIVs.  A CCIV will be a retail CCIV if, effectively, at least one member is a retail client (including a client that acquires its interest in the CCIV through a platform).

    The corporate director will have to specify whether the CCIV is to be a retail or wholesale CCIV, provide information about the sub-fund that is to be registered, information about the persons who have consented to be members of the CCIV and the name of the sub-fund of the CCIV (which must include CCIV or ‘corporate collective investment vehicle’ at the end of it – ‘limited’ or ‘ltd’ will not be used).

    What are the consequences for failing to register a fund that is required to be registered?

    An application can be made by ASIC or an investor in the fund to have it wound up if it has not been registered when required, and an investor may void their investment contract.

    Can a foreign fund be registered as an MIS or CCIV is Australia?

    A registered MIS must be operated only by its RE and a CCIV must be operated only by its corporate director.

    As the RE or a corporate director must be a public company, it must have at least three directors and at least two of those directors must ordinarily reside in Australia.  A majority of the directors of a corporate director must be, effectively, independent.

    If a foreign fund manager commences marketing its fund in Australia, then it is likely to be conducting a financial services business in Australia.  If that is the case, then it must be registered as a foreign company under the Corporations Act and a local agent must be appointed.  The foreign fund manager must either obtain its own AFSL or act under a licensing exemption to provide its services in Australia.

    Australia is a member of the Asia Region Funds Passport, which provides a multilateral framework between a small number of participating countries in the Asian region to facilitate the cross-border marketing of passport funds across participating regions.  Although Australia, Japan, the Republic of Korea, New Zealand and Thailand are ready to receive registration applications from local prospective passport funds and entry applications from foreign passport funds, as at 6 March 2024, only one such fund has been registered (in New Zealand).