By Felicity Simpson

13 December 2016

The governance of the financial product and services sector is comprised of an integral and wide reaching web of obligations, exclusions and exceptions. An area often overlooked and misunderstood, is that of Managed Investment Schemes.

The old saying of “substance over form”, is central to the provisions which govern Managed Investment Schemes. Irrespective of how an arrangement is framed, where a structure provides for the pooling of resources for a common purpose, the promoters need to ask themselves – does this amount to a Managed Investment Scheme?

What is a Managed Investment Scheme?

In its simplified form, the governing regime is wide reaching and potentially captures any pooling of funds for a common purpose, where the investors do not have day to day management of the business/investment. By way of example, an investment into a unit trust structure, where the unit holders do not have control of the day to day management of the business or investment may be a Managed Investment Scheme.

Consequently, anyone who has engaged with passive investors, whether to purchase property, undertake a development etc, may find themselves inadvertently falling foul of the Managed Investment Schemes provisions set out in the Corporations Act (Cth) 2001 (Act). To minimize this risk and to ensure compliance with the Act, careful consideration should be given to any project or investment, involving passive investors.

What does it mean to be a Managed Investment Scheme?

An advice that a particular scheme, fund or trust amounts to a Managed Investment Scheme does not necessarily mean that it is controlled by the provision of the Act. Not all Managed Investment Schemes are required to be registered with ASIC.

There are many factors to be taken into consideration in advising upon whether registration is required depending upon the specific circumstances of the client.

Issues for consideration can include:

  • Who are the investors – retail or wholesale?
  • How many investors are there?
  • What is the value of the Managed Investment Scheme?
  • Is the controller (or any related entity) of the MIS in the business of conducting MIS?
  • What does the Managed Investment Scheme do? ie. does it own property for the purposes of development or lease, or does it invest in mortgages etc.

Given the breadth of structures which may be caught by the definition of a Managed Investment Scheme, there are an array of exemptions that may be available in different scenarios. Detailed instructions are required to enable us to form a legal opinion on the registration obligations (if any) in any given situation.

What does registration mean to the trustee/promoter?

If a Managed Investment Scheme is required to be registered, the Act sets out many formal requirements for consideration. We can provide detailed advice focused upon your specific circumstances.

 

If you operate in this area and are unsure of your obligations, please contact Felicity Simpson or a member of our business and corporate team to discuss.

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