THE CORPORATIONS LAW

CHAPTER 8 - THE FUTURES INDUSTRY

PART 8.6 - FIDELITY FUNDS

SECTION 1239   APPLICATION OF FUND  

1239(1)  [Compensation for pecuniary loss]  

Subject to this Part, where:

(a)  a person (in this subsection called the ``futures person'') suffers pecuniary loss at a particular time because of a defalcation, or because of fraudulent misuse of money or other property, by:

(i) a person who is at that time a contributing member of a futures organisation;

(ii) a director, partner, officer or employee of a person who is at that time a contributing member of a futures organisation; or

(iii) a partner in, or employee of, a partnership that is at that time a contributing member of a futures organisation; and

(b)  the loss is suffered in respect of money or other property that was, in connection with the contributing member's dealings in futures contracts (whether or not any of those dealings was effected on a futures market), entrusted to or received by the contributing member, or a director, partner, officer or employee of the contributing member (whether before or after the commencement of this section):

(i) for or on behalf of the futures person or another person; or

(ii) because the contributing member was trustee of the money or other property;

the fidelity fund of the futures organisation shall be applied for the purpose of compensating the futures person.

1239(2)  [Interpretation]  

The reference in paragraph (1)(b) to a partner of a contributing member of a futures organisation is, in a case where the contributing member is a partnership, a reference to a partner in the partnership.

1239(3)  [Discretion in cases of bankruptcy]  

Subject to this Part, where a right to compensation does not arise under subsection (1), a fidelity fund of a futures organisation may, if the board of the futures organisation thinks fit, be applied for the purpose of paying to an official receiver or trustee within the meaning of the Bankruptcy Act 1966 an amount not greater than the amount that the official receiver or trustee, as the case may be, certifies is required in order to make up or reduce the total deficiency arising because the available assets of a bankrupt who is a contributing member of the futures organisation are insufficient to satisfy the debts arising from dealings in futures contracts that have been proved in the bankruptcy by creditors of the bankrupt.

1239(4)  [Composition, assignment or arrangement]  

Subsection (3) applies in the case of a contributing member of a futures organisation who has made a composition with the member's creditors, or has executed a deed of assignment or a deed of arrangement, under Part X of the Bankruptcy Act 1966 in like manner as that subsection applies in the case of a contributing member of a futures organisation who has become bankrupt and, for the purposes of that subsection as so applying by virtue of this subsection:

(a)  the reference in that subsection to a trustee shall be deemed to be a reference to a controlling trustee within the meaning of that Part;

(b)  the reference to debts proved in the bankruptcy shall be deemed to be a reference to provable debts in relation to the composition or deed within the meaning of that Part; and

(c)  a reference to the bankrupt shall be deemed to be a reference to the person who made the composition or executed the deed.

1239(5)  [Payment to liquidator]  

Subject to this Part, where a right to compensation does not arise under subsection (1), a fidelity fund of a futures organisation may, if the board of the futures organisation thinks fit, be applied for the purpose of paying to the liquidator of a body corporate that is a contributing member of the futures organisation and that has commenced to be wound up, an amount not greater than the amount that the liquidator certifies is required to make up or reduce the total deficiency arising because the available assets of the body corporate are insufficient to satisfy the debts of the body corporate arising from dealings in futures contracts that have been proved in the winding up by creditors of the body corporate.

1239(6)  [Satisfaction of particular debts]  

Money paid pursuant to subsection (3) or (5) is so paid only on condition that it is applied by the official receiver, trustee or liquidator towards satisfaction of debts arising from dealings in futures contracts and for no other purpose.

1239(7)  [Maximum amounts payable]  

Subject to subsection (9), the amount, or the sum of the amounts, paid under this Part out of a fidelity fund of a futures organisation:

(a)  for the purpose of compensating pecuniary loss as mentioned in subsection (1); or

(b)  for the purpose of making payments under subsection (3) or (5);

shall not exceed, in respect of a particular contributing member of the futures organisation:

(c)  unless paragraph (d) applies - $500,000; or

(d)  if some other amount is prescribed, for the purposes of this subsection, in relation to the futures organisation, a class of futures organisations that includes the futures organisation, or futures organisations generally - that amount.

1239(8)  [Repayments disregarded]  

For the purposes of calculating the sum referred to in subsection (7), an amount that is paid from a fidelity fund shall, to the extent to which that amount is repaid to the fund, be disregarded.

1239(9)  [Payments in excess of limits]  

If a futures organisation considers, having regard to the ascertained or contingent liabilities of its fidelity fund, that the assets of the fund so permit, the futures organisation may apply out of the fund such sums in excess of the amount limited by or under this section as the futures organisation, in its discretion, thinks fit in or towards the compensation of persons who have suffered pecuniary loss as mentioned in subsection (1) or making a payment under subsection (3) or (5).

1239(10)  [Defalcation etc by former member]  

Where:

(a)  money or other property has been entrusted to, or received by:

(i) a person or partnership;

(ii) a director, partner, officer or employee of a person; or

(iii) a partner in or employee of, a partnership;

being a person who, or a partnership that, has at any time been but is no longer a contributing member of a futures organisation;

(b)  immediately before that person or partnership last ceased to be a member or member organisation of the futures organisation, he, she or it was a contributing member of the futures organisation;

(c)  because of a defalcation, or the fraudulent misuse of money or other property by:

(i) that person or a director, partner, officer or employee of that person; or

(ii) a partner in, or employee of, that partnership;

as the case may be, the person by or from whom the money or other property was so entrusted or received suffered pecuniary loss; and

(d)  at the time when the money or other property was so entrusted or received, the person suffering the pecuniary loss believed, on reasonable grounds, that that person or partnership was at that time a member or member organisation of the futures organisation;

that person or partnership shall, for the purposes of this section (other than this subsection and subsection (11)), be deemed to have been, when the pecuniary loss was suffered, a contributing member of the futures organisation.

1239(11)  [Debt incurred by former member]  

Where:

(a)  a person who or a partnership that has at any time been, but is no longer, a contributing member of a futures organisation has incurred a debt arising from dealings in futures contracts; and

(b)  at the time when the debt was incurred, the creditor, or one or more of the creditors, in relation to the debt believed on reasonable grounds that that person or partnership was at that time a member or member organisation of the futures organisation;

a reference in this section (other than subsection (10) and this subsection) to a contributing member of the futures organisation shall, for the purpose of determining the application of subsection (3) or (5) in relation to that creditor or those creditors, as the case may be, in relation to that debt, be deemed to include a reference to that person or partnership.

1239(12)  [Interpretation]  

A reference in this section to a defalcation, or to a fraudulent misuse of money or other property, is a reference to a defalcation, or to such a fraudulent misuse, wherever and whenever occurring.