House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)

Chapter 2: CCIVs - Registration

Outline of chapter

2.1 Chapter 2 of this explanatory memorandum sets out the registration requirements for a CCIV and a sub-fund of a CCIV.

2.2 It sets out:

•

the requirements for registration as a CCIV;

•

how a CCIV is registered;

•

the rules for a CCIV's name;

•

the meaning of a retail CCIV and a wholesale CCIV;

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the prohibition on listing for certain CCIVs; and

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the restriction on changing company type.

2.3 In relation to the registration of a sub-fund of a CCIV, it sets out:

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what a sub-fund of a CCIV is;

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how a sub-fund of a CCIV is registered; and

•

the rules for a sub-fund's name.

2.4 Chapter 2 also sets out the rules for the CCIV's company register.

Context of amendments

2.5 The key feature of a CCIV is its corporate status: a CCIV is a company used for collective investment. Investors may pool their funds in a CCIV and have them managed by a professional fund manager. Previously, the most common vehicle available for this kind of collective investment was a trust-based MIS. MISs that offer interests to retail clients are registered schemes and are regulated under Chapter 5C of the Corporations Act.

2.6 The establishment of CCIVs brings the Australian regime for funds management into line with jurisdictions overseas, in particular the European Union's UCITS regime, the UK's OEIC regime, and various other regimes in the Asian region.

2.7 Several of the core features of a CCIV have been drawn from overseas regulatory precedents, including that a CCIV is a company limited by shares and the concept of a sub-fund of a CCIV.

2.8 In addition, parts of the regulatory framework for CCIVs have been drawn from the MIS regime in order to ensure general parity and consistency between the two regimes.

2.9 As with a MIS, a CCIV may either be retail or wholesale. Generally, a CCIV is a retail CCIV if it issues or has issued its securities to retail clients. Otherwise, it is a wholesale CCIV. Different regulatory requirements apply to retail and wholesale CCIVs to ensure an appropriate balance between regulation and investor protection for retail and wholesale clients.

2.10 However, unlike the MIS regime, which only requires the registration of retail MISs, all CCIVs must be registered as a company with ASIC.

Summary of new law

Registration of a CCIV

2.11 A CCIV is a new type of company that is limited by shares and has as its director a public company with an AFSL authorising it to operate the business and conduct the affairs of the CCIV.

2.12 A company may be registered as a CCIV if it meets certain basic registration requirements, including that upon registration it will have at least one sub-fund (which must have at least one member).

2.13 A CCIV is registered through the same process as other companies, although the application process reflects the unique corporate structure of a CCIV (for example, additional information must be provided in relation to the sub-fund or sub-funds that the CCIV proposes to have on registration). Some of the content that is required for other companies is not relevant in the CCIV context (such as the details of the company's secretary).

2.14 The application for registration must be accompanied by a notice stating whether the CCIV is to be a retail CCIV or a wholesale CCIV. If the CCIV is to be a retail CCIV, the application must also be accompanied by a copy of the CCIV's compliance plan.

2.15 Upon registration, the persons identified in the application as the proposed corporate director and members of the CCIV assume those roles. The shares specified in the application form are also taken to be issued to those members upon registration.

2.16 A CCIV's name is subject to special naming requirements - including requiring the expression "Corporate Collective Investment Vehicle" or the abbreviation "CCIV" at the end of its name.

2.17 A CCIV may be a retail CCIV or a wholesale CCIV. Retail CCIVs are subject to additional regulatory requirements that provide protections for retail clients. The new law sets out when a CCIV is a retail CCIV or a wholesale CCIV. A CCIV is a wholesale CCIV unless securities in the CCIV were issued to retail clients, or transferred to a retail client in circumstances that required that a PDS be given to that client. This will generally ensure that a CCIV with one or more retail clients (within the existing definitions in Chapter 7 of the Corporations Act) will be a retail CCIV.

2.18 A retail CCIV with one sub-fund, or a sub-fund of a retail CCIV (with only one sub-fund), may be included in the official list of a prescribed financial market operated in Australia. However, other CCIVs and sub-funds (being retail CCIVs with more than one sub-fund, wholesale CCIVs, and their sub-funds) are prohibited from being listed as such.

2.19 These restrictions do not affect the ability to quote a security in a CCIV on a financial market, such as the ASX Quoted Assets Market, subject to the rules of that financial market. A security in a CCIV (regardless of the number of its sub-funds) may be quoted on a financial market, subject to the relevant requirements of that market.

2.20 A CCIV may not change into another type of company. Another type of company may not change into a CCIV.

Registration of a sub-fund of a CCIV

2.21 A sub-fund of a CCIV is all or part of the CCIV's business that is registered by ASIC as a sub-fund of the CCIV. A sub-fund is established on registration.

2.22 The initial sub-fund or sub-funds of the CCIV are registered by ASIC as part of the registration of the CCIV. Registration of a sub-fund of the CCIV after the registration of the CCIV itself is by a standalone process.

2.23 This standalone process involves lodging an application with ASIC in the prescribed form that states the proposed name of the sub-fund, the name and ACN of the CCIV, the details of each person who consents to become a member of the sub-fund and certain information about the shares that each member will take up. This information aligns with the information required for registration of an initial sub-fund as part of the registration of the CCIV itself.

2.24 An ARFN is given to each sub-fund as part of the registration process.

2.25 A sub-fund's name is the name specified in the record of the sub-fund's registration. A sub-fund's name is subject to naming requirements, including that it must have the CCIV's name at the start of its name.

2.26 A sub-fund's name and ARFN must be identified on certain documents, including all public documents and negotiable instruments.

Registers

2.27 Similar to a company and a registered scheme, a CCIV must maintain a register of members including the details of the securities held by each member and which sub-fund of the CCIV each security is referable to. If a CCIV is a member (for example, under cross-investment within one CCIV), then the CCIV's register of members must identify the relevant sub-fund to which the membership relates.

Comparison of key features of new law and current law

Detailed explanation of new law

A new type of company

2.28 A CCIV is a company that is registered as a CCIV under the Corporations Act. Defining a CCIV in this way reflects the fact that registration as a CCIV is a voluntary election. [Schedule 2, items 5 and 9, definitions of 'CCIV' and 'corporate collective investment vehicle' in section 9]

2.29 As a CCIV is a new type of company, it is included separately in the table of types of companies that are registrable under the Corporations Act in subsection 112(1). [Schedule 1, items 1 to 3, table in subsection 112(1) and notes to subsection 112(1); Schedule 2, item 21, definition of 'public company' in section 9 of the Corporations Act]

Registering a CCIV

Basic registration requirements

2.30 A company may be registered as a CCIV if it meets certain basic requirements for registration, including that:

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it is a company limited by shares;

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it has a constitution;

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the proposed director of the company is a public company that holds an AFSL authorising it to operate the business and conduct the affairs of the CCIV; and

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upon registration, it will have at least one sub-fund (which will have at least one member).

[Schedule 1, item 4, section 1222]

2.31 In order to be registered as a CCIV, a notice about whether the CCIV is to be a retail or wholesale CCIV must also be lodged with the application for registration. If the CCIV will be a retail CCIV upon registration, it must also have a compliance plan. [Schedule 1, item 4, paragraphs 1222(f) and (g), and subsection 1222A(4)]

Process for registration

2.32 The ordinary process for applying to register a company, contained in section 117 of the Corporations Act, is modified for CCIVs. Consistent with subsection 117(4) of the Corporations Act, an application to register a CCIV must be in the prescribed form. [Schedule 1, item, 4, subsection 1222A(1); Schedule 2, item 40, note 2 to subsection 117(1)]

2.33 The application must include the information requirements for companies listed in subsection 117(2) of the Corporations Act, with the exception of the following information, which is not relevant for CCIVs:

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the personal details and addresses of individual directors, as individuals may not be appointed as directors of a CCIV;

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the personal details and address of the company secretary, as a CCIV must not appoint a company secretary; and

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whether or not the company will have an ultimate holding company (and the details of the holding company).

[Schedule 1, item 4, subsection 1222A(2)]

2.34 The application must also include certain additional information, reflecting a CCIV's unique form as a company, including:

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the name and registered office address of the public company that has consented, in writing, to be the CCIV's corporate director;

•

the proposed name of each sub-fund the CCIV proposes to establish on registration of the CCIV; and

•

for each proposed sub-fund, information regarding the shares being taken up by persons who have consented to become members of the CCIV.

[Schedule 1, item 4, subsection 1222A(3)]

2.35 The person making the application must have the written consents of the proposed corporate director and members of the CCIV which, after the CCIV is registered, must be given to the CCIV. The CCIV has an obligation to keep the consents. [Schedule 1, item 4, subsection 1222A(7)]

2.36 The application must be accompanied by a notice stating whether the CCIV is to be a retail CCIV or a wholesale CCIV and a copy of the CCIV's constitution. [Schedule 1, item 4, subsections 1222A(4) and (5)]

2.37 If the CCIV is to be a retail CCIV, then the application must also be accompanied by a copy of the compliance plan that has been signed by all the directors of the proposed corporate director. [Schedule 1, item 4, subsection 1222A(6)]

2.38 After receiving an application to register a company as a CCIV, ASIC may register the company under section 118 of the Corporations Act if the company meets the basic registration requirements explained above. [Schedule 1, item 4, section 1222C; Schedule 2, items 42 and 43, note 2 to subsection 118(1)]

2.39 A body may only be registered as a CCIV through this application process. There is no other way to register a CCIV. In particular, a body that is registered under State or Territory law may not be taken to be registered as a CCIV under section 5H of the Corporations Act. Allowing only one process for the registration of a CCIV enables ASIC to oversee the registration of all CCIVs. [Schedule 1, item 4, section 1222B]

2.40 Under the Government's Modernising Business Registers program, registration functions are progressively being transferred to the Australian Business Registry Services. The registration of a CCIV will be subject to this transfer as is the case for other company registrations.

Effect of registration

2.41 Upon registration, the persons proposed in the application to become the corporate director and members of the CCIV become those things. The shares specified in the application form are also taken to be issued to those members upon registration. [Schedule 1, item 4, section 1222D; Schedule 2, item 44, note to subsection 120(1)]

Special naming requirements for a CCIV's name

2.42 The naming requirements for the names of companies under Part 2B.6 of Chapter 2B of the Corporations Act generally apply to the name of a CCIV. However, there are some special requirements for a CCIV's name.

2.43 Even though a CCIV is a company limited by shares, it does not need to have the word "Limited" at the end of its name. Instead, it is required to have the expression "Corporate Collective Investment Vehicle" at the end of its name. Alternatively, the abbreviation "CCIV" can be used. [Schedule 1, item 4, sections 1222E and 1222F]

2.44 In the same way that a person is prohibited from carrying on a business using the words "Limited", "No Liability" or "Proprietary" in their name (or an abbreviation of these words) unless allowed or required to do so under law, a person is also prohibited from carrying on a business with "Corporate Collective Investment Vehicle" or "CCIV" in their name unless allowed or required to do so under law. [Schedule 1, item 4, section 1222G]

2.45 An application to change a CCIV's name may not be lodged with ASIC under section 157A of the Corporations Act while a sub-fund of the CCIV is in liquidation. [Schedule 1, item 4, section 1222H]

2.46 The naming requirements for a sub-fund's unique name are explained further in paragraphs 2.92 to 2.106.

Definition of a 'retail CCIV' and 'wholesale CCIV'

2.47 A CCIV is a retail CCIV if it satisfies the retail CCIV test or if it notifies ASIC that it is a retail CCIV. A CCIV is a wholesale CCIV if it is not a retail CCIV. [Schedule 1, item 4, section 1222J; Schedule 2, items 25 and 28, definitions of 'retail CCIV' and 'wholesale CCIV' in section 9 of the Corporations Act]

Retail CCIV test

2.48 Distinguishing between retail CCIVs and wholesale CCIVs is necessary as, unlike the MIS regime, all CCIVs must be registered irrespective of whether they are retail or wholesale. However, retail CCIVs are subject to additional regulatory requirements compared to wholesale CCIVs.

2.49 A CCIV meets the retail CCIV test if it has at least one member who is a 'protected retail client', a 'protected client under a custodial arrangement' or a 'protected member of a passport fund'. In this case, the CCIV as a whole is a retail CCIV. [Schedule 1, item 4, subsection 1222K(1)]

2.50 A person is a protected retail client if the person acquires a security issued by a CCIV as a retail client. The retail client may acquire the security by way of issue or a transfer if the transfer amounts to an off-market sale by a controller of the CCIV (as set out in subsection 1012C(5) of the Corporations Act), is a sale amounting to an indirect issue (subsection 1012C(6) of the Corporations Act) or is a sale amounting to an indirect off-market sale by a controller of the CCIV (subsection 1012C(8) of the Corporations Act). The definition of a retail client in existing section 761G of the Corporations Act excludes persons who acquire a product in connection with a business, professional investors and certain products of a particularly high value. [Schedule 1, item 4, paragraphs 1222K(2)(a) and (b)]

2.51 There are two categories of members that are always excluded from the definition of a protected retail client, namely:

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persons 'associated' with the CCIV (see paragraph 9.38); and

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persons that acquire the security by way of an issue that is part of a small scale personal offer (see paragraph 9.42).

[Schedule 1, item 4, paragraphs 1222K(2)(c) and (d)]

2.52 A person is a protected client under a custodial arrangement if the acquisition of the security occurs under a 'custodial arrangement', the person would have been a retail client if there was an 'equivalent direct acquisition', and the person is not associated with the CCIV. Refer to section 1012IA of the Corporations Act for the 'definition of a custodial arrangement' and 'equivalent direct acquisition'. [Schedule 1, item 4, subsection 1222K(3)]

2.53 It is expected that 'protected retail clients' and 'protected clients under a custodial arrangement' are less sophisticated clients who may not have the knowledge, resources or expertise to protect their own interests.

2.54 Finally, a person is a protected passport fund member if the sub-fund is an Australian passport fund and the person became a member after the sub-fund became an Australian passport fund or on the expectation that the sub-fund would become an Australian passport fund (see sections 9 and 1216B of the Corporations Act). [Schedule 1, item 4; subsection 1222K(4)]

2.55 A sub-fund of a CCIV with one or more protected passport fund members must remain an Australian passport fund under the Memorandum of Cooperation on the Establishment and Implementation of the ARFP. ^[1] Only sub-funds of retail CCIVs are eligible to become Australian passport funds. It is for this reason that a CCIV with a protected passport fund member must remain a retail CCIV. See Chapter 10 of this explanatory memorandum for a discussion of how the ARFP regime applies to CCIVs.

2.56 The corporate director, a former corporate director or a related party of the current or a former corporate director are not protected passport fund members. These persons are considered to have greater knowledge than other passport fund members and are in a better position to protect their own interests. [Schedule 1, item 4, paragraph 1222K(4)(c)]

2.57 The carve-out for corporate directors and related parties is narrower than the carve-out for persons associated with the CCIV from the definition of a protected retail client or protected client under a custodial arrangement. This difference reflects the fact that only corporate directors and related parties are carved out from the special protections that apply when a registered scheme is an Australian passport fund in sections 1216A and 1216C of the Corporations Act.

2.58 The new law includes a power to make regulations that amend the circumstances where a person is a protected retail client, a protected client under a custodial arrangement or a protected passport fund member. This regulation-making power is necessary because minor amendments may need to be made to the definitions to take into account unforeseen circumstances or changes to the PDS regime (which is linked to the definition of a retail CCIV). It is envisaged that the regulation-making power will be used to deal with the same sorts of contingencies as the general regulation making power in Part 8B.9 of the new law (see Chapter 12 of this explanatory memorandum). [Schedule 1, item 4, subsection 1222K(5)]

Notification as a retail CCIV

2.59 A CCIV is a retail CCIV if the most recent notice lodged with ASIC states that the CCIV is, or wishes to be, a retail CCIV. This notice may have been provided at the time of applying to register the CCIV or when the CCIV wishes to change its status. [Schedule 1, item 4, subsection 1222L(1)]

2.60 A CCIV must state whether it intends to be a retail CCIV or a wholesale CCIV on registration. A wholesale CCIV or a retail CCIV can also provide a new notice to ASIC when its status changes.

Wholesale CCIVs changing their status

2.61 If a wholesale CCIV meets the retail CCIV test (see paragraphs 2.48 to 2.58), it must lodge a notice in the prescribed form within two business days of meeting the test. [Schedule 1, item 4, paragraph 1222L(2)(a) and subsections 1222L(3) and (4)]

2.62 All CCIVs that meet the retail CCIV test are retail CCIVs, irrespective of whether they lodge a notice. Nevertheless, a CCIV is required to notify ASIC that it has become a retail CCIV to ensure that ASIC is aware that the CCIV is now subject to the additional regulatory requirements that apply only to retail CCIVs. Notification of a CCIV's status to ASIC does not affect the obligations that apply to the CCIV.

2.63 A wholesale CCIV that fails to notify ASIC that it is a retail CCIV within two business days of meeting the retail CCIV test commits a strict liability offence punishable by a fine of up to 20 penalty units. See paragraph 2.71 for a discussion of why a strict liability offence is appropriate in this circumstance. [Schedule 1, item 4, subsections 1222L(3) to (5); Schedule 2, item 199, penalty for subsection 1222L(3) inserted into Schedule 3 to the Corporations Act]

2.64 Nevertheless, a CCIV has a defence if the CCIV did not know and could not reasonably have been expected to know that the CCIV had a protected retail client, a protected client under a custodial arrangement or a protected member of a passport fund. A defendant bears the evidential burden for this defence in respect of this knowledge. This offence-specific defence supplements the defence for mistake of fact in section 9.2 of the Criminal Code. [Schedule 1, item 4, subsection 1222L(6)]

2.65 This offence pursues the legitimate objective of aiding the oversight and enforcement of the CCIV regime by ASIC, as well as broader confidence in the proper operation of the CCIV regime. It is important that ASIC, third parties and investors are readily able to identify the status of a CCIV as retail or wholesale. This is of critical importance because retail CCIVs are subject to a regulatory framework that encompasses additional regulatory protections necessary for retail investors. Wholesale CCIVs are subject to a more limited regulatory framework, reflecting the higher degree of investor sophistication among wholesale investors and capacity to negotiate bespoke arrangements with fund providers.

2.66 A CCIV will be a wholesale CCIV unless securities in the CCIV were issued or transferred to a retail client in circumstances that would have required that a PDS be given to that client under Chapter 7 of the Corporations Act. This is intended to ensure that a CCIV with one or more retail clients (within the existing meaning the Corporations Act) will generally be a retail CCIV.

2.67 Whether or not a CCIV is retail or wholesale, with reference to the nature of its clients, is a matter that is peculiarly within the knowledge of the defendant (being the CCIV). It would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter. Accordingly, this reversal of the burden of proof is appropriate.

2.68 A wholesale CCIV may voluntarily elect to become a retail CCIV even if it does not meet the retail CCIV test. One situation where a wholesale CCIV may wish to become a retail CCIV is where it wishes to apply for one of its sub-funds to become a passport fund. In order to become a retail CCIV, the wholesale CCIV needs to lodge a notice with ASIC. [Schedule 1, item 4, paragraph 1222L(2)(a))]

Retail CCIVs changing their status

2.69 A retail CCIV that ceases to meet the retail CCIV test may notify ASIC that it wishes to become a wholesale CCIV. It is not required to provide this notice. This recognises that some CCIVs that do not meet the retail CCIV test may wish to remain as retail CCIVs; for example, so that they can apply to become Australian passport funds or because they intend to market their interests to retail clients. [Schedule 1, item 4, paragraph 1222L(2)(b)]

2.70 Nevertheless, a CCIV must not notify ASIC that it is a wholesale CCIV if it meets the retail CCIV test. A CCIV which breaches this requirement commits a strict liability offence punishable by up to 20 penalty units. See paragraph 2.71 for a discussion of why a strict liability offence is appropriate in this circumstance. [Schedule 1, item 4, subsections 1222L(6) and (7); Schedule 2, item 199, penalty for subsection 1222L(7) inserted into Schedule 3 to the Corporations Act]

Strict liability offences

2.71 The strict liability offences in the notification provisions are appropriate as the integrity of the regulatory regime is threatened if ASIC is unaware of the true status of a fund. There are additional regulatory requirements that apply to retail CCIVs, primarily to ensure there are appropriate protections in place for retail investors, and ASIC's ability to enforce those requirements is hampered if it does not know whether a CCIV is a retail CCIV or a wholesale CCIV. For these reasons, the imposition of a strict liability offence is consistent with the Guide to Framing Commonwealth Offences.

Application of the CCIV regulatory framework to retail CCIVs and wholesale CCIVs

2.72 The distinction between retail CCIVs and wholesale CCIVs is an important one. This is because retail CCIVs are subject to the full regulatory framework in Chapter 8B, whereas wholesale CCIVs are subject to fewer requirements. This follows the regulatory approach for MISs, where retail MISs - that is, registered schemes - are subject to the full regulatory requirements. However, unlike the MIS regime, all CCIVs (including wholesale CCIVs) are required to be registered under the Corporations Act.

2.73 The table below sets out the key differences in the way retail and wholesale CCIVs are regulated (which reflects similar guidance included in the new law). [Schedule 1, item 4, section 1222M]

Listing of a CCIV or a sub-fund

2.74 A retail CCIV with a single sub-fund, or a sub-fund of a retail CCIV (with a single sub-fund), may be included in the official list of a prescribed financial market operated in the Australian jurisdiction. However, other CCIVs and sub-funds (being retail CCIVs with more than one sub-fund, wholesale CCIVs, and their sub-funds) are prohibited from being listed as such. [Schedule 1, item 4, section 1222N]

2.75 If a retail CCIV or its sub-fund is listed, then the rules that apply to listed entities in the Corporations Act apply in respect of that CCIV (and sub-fund). A retail CCIV will be a 'listed' within the meaning in section 9 if it, or its only sub-fund, is included in the official list of a prescribed financial market in Australia. Similarly, a sub-fund will be 'listed' within the meaning of the Corporations Act if it (or the CCIV) is included in this list. [Schedule 2, item 16, definition of 'listed' in section 9 of the Corporations Act]

2.76 These restrictions do not affect the ability to quote a security in a CCIV on a financial market, such as the ASX Quoted Assets Market, subject to meeting the market's quoting rules. A security in a CCIV (regardless of the number of its sub-funds) may be quoted on a financial market, subject to the relevant requirements of that market.

Prohibition on changing company type

2.77 Part 2B.7 of the Corporations Act does not apply to a CCIV. This means that a CCIV may not change company type into another type of company. This also means that another type of company may not change company type into a CCIV. [Schedule 1, item 4, section 1222P]

Registering a sub-fund of a CCIV

Meaning and nature of a sub-fund

2.78 A sub-fund of a CCIV is all or part of the business of the CCIV that is registered by ASIC as a sub-fund of the CCIV. It is established on registration by ASIC (explained further below). [Schedule 1, item 4, subsection 1222Q(1), section 1222T]

2.79 A sub-fund does not have legal personality. [Schedule 1, item 4, subsection 1222Q(2)]

2.80 This means that a sub-fund cannot enter into contracts, cannot sue or be sued in its own name, and cannot acquire, hold or dispose of assets or liabilities in its own name. It is the CCIV itself which has legal personality with the power to do all of this (and it must identify the relevant sub-funds when doing so - explained further below). A sub-fund is a distinct and protected part of the CCIV's business. It is strictly segregated from any other sub-fund of the CCIV.

2.81 Despite the fact that a sub-fund does not hold assets or incur liabilities in its own name, assets and liabilities of the CCIV are allocated to each sub-fund of the CCIV in accordance with the allocation rules (see Chapter 6 of this explanatory memorandum).

2.82 Further, despite a sub-fund not being able to enter into agreements, or sue and be sued in its own name, member and third party rights and obligations may accrue against the assets and liabilities of the sub-fund.

2.83 A person is a member of a sub-fund if the person is a member of a CCIV and holds one or more shares that are referable to that sub-fund. The meaning of 'referable' in relation to a share of a CCIV is explained further in paragraph 4.17. [Schedule 1, item 4, subsection 1222Q(3); Schedule 2, items 17, 22 and 28, definitions of 'member', 'referable' and 'sub-fund']

Registering a sub-fund of the CCIV

2.84 Sub-funds are subject to a streamlined registration process.

2.85 The initial sub-fund(s) of a CCIV are registered by ASIC as part of the registration of the CCIV itself (see discussion in paragraphs 2.30 to 2.41 above). ASIC may register the initial sub-fund(s) of the CCIV if it registers the CCIV and if the sub-fund's proposed name has been provided in the application to register the CCIV. ASIC must register at least one sub-fund if it registers the CCIV. [Schedule 1, item 4, section 1222R, subsection 1222S(1)]

2.86 Once a CCIV has been registered, ASIC may register further sub-funds of the CCIV upon receiving an application from the CCIV. The application must be in the prescribed form and include:

•

the proposed name of the sub-fund;

•

the name and ACN of the CCIV;

•

the name and address of each person who consents to become a member of the sub-fund; and

•

certain information about the shares that will be referable to the sub-fund that each member will take up.

[Schedule 1, item 4, subsection 1222S(2), section 1222U]

2.87 The information about the initial membership of the sub-fund and the shares that are referable to it is the same type of information that is required upon registration of the initial sub-fund(s) of the CCIV as part of the application for registration of the CCIV itself. It reflects the fact that the new sub-fund would be a discrete part of the CCIV's business.

2.88 If ASIC registers a sub-fund, whether as part of the initial registration of a CCIV or subsequently, it must give the sub-fund an ARFN and keep a record of the registration. [Schedule 1, item 4, subsections 1222S(3) and (4)]

2.89 Similar to the records of registration of companies under section 118(2) of the Corporations Act, subsections 1274(2) and (5) of the Corporations Act apply to the record as if the records were documents lodged with ASIC. This allows a person to, among other things, inspect the records and use the record as evidence in legal proceedings.

2.90 Under the Government's Modernising Business Registers program, registration functions are progressively being transferred to the Australian Business Registry Services. The registration of a sub-fund of a CCIV will be subject to this transfer, consistent with the process for registration of the CCIV (see paragraph 2.40 above).

The significance of separate registration of sub-funds

2.91 The separate registration of each sub-fund of a CCIV helps to ensure the business of the sub-fund is protected from the business of other sub-funds of the CCIV. In effect, a sub-fund does not come into being until the day it is registered and given a unique name and identifier - its ARFN - by ASIC. This supports the clear identification (and segregation) of the assets and liabilities of each sub-fund of a CCIV and ensures counterparties are always be able to identify the part of the business of a CCIV they are transacting with. This is further supported by the requirement to identify the sub-fund on documents that relate to the business of the sub-fund (see paragraphs 2.107 to 2.112).

Names of sub-funds

2.92 A sub-fund's name is the name specified in ASIC's record of the registration of the sub-fund. [Schedule 1, item 4, subsection 1222T]

Naming requirements

2.93 The name of a sub-fund of the CCIV is dependent on the CCIV's name.

2.94 If the CCIV has, as its name, the expression "Australian Company Number" followed by its ACN, then a sub-fund of the CCIV's name may be the expression "Australian Registered Fund Number" followed by the sub-fund's ARFN. [Schedule 1, item 4, subsection 1222V(1)]

2.95 If the CCIV has, as its name, an available name, then the sub-fund's name must be constituted of the following three elements, in the following order:

•

element 1: the CCIV's name (without the expression "Corporate Collective Investment Vehicle", which the CCIV is required to have at the end of its name (see paragraph 2.43));

•

element 2: a name that is not:

-

identical to name of the second element of the name of any other sub-fund of the CCIV; or

-

a name that has been reserved by ASIC for a person who is not the person applying to have the sub-fund's name registered; or

-

unacceptable for registration under the regulations;

•

element 3: the expression "Sub-fund".

[Schedule 1, item 4, subsections 1222V(2) and (3)]

2.96 Certain permitted abbreviations may be used in the sub-fund's name in place of the words or expressions required by the Corporations Act to be included in a sub-funds name. These abbreviations are:

•

SF (for the expression "Sub-fund");

•

AFRN (for the expression "Australian Registered Fund Number");

•

Aust (for the word "Australian");

•

No (for the word "number"); and

•

& (for the word "and").

[Schedule 1, item 4, section 1222X]

Example 2.1 Name of a sub-fund of a CCIV

Ironbank CCIV has two sub-funds.

The first sub-fund is referable to a part of its business that invests in global equities. This sub-fund has as its name Ironbank Global Equities SF.

The second sub-fund is referable to a part of its business that invests in Australian bonds. This sub-fund has as its name Ironbank Fixed Income SF.

2.97 The incorporation of the CCIV's name into the sub-fund's name ensures that the CCIV and the sub-fund are intrinsically linked by their respective names. In all of the CCIV's dealings with other people in respect of a particular sub-fund of the CCIV (including investors and third parties), a person can identify the CCIV to which the sub-fund relates.

2.98 The second element of the sub-fund's name allows that sub-fund to be uniquely identifiable from any other sub-fund of the CCIV. This supports the CCIV differentiating between the different parts of the business to which each sub-fund of the CCIV relates.

2.99 Requiring the expression "sub-fund" to be at the end of the sub-fund's name is a means of signalling that the entity is a sub-fund (which is important given a sub-fund is not a separate legal entity (see the discussion in paragraph 2.79)).

Changing a sub-fund's name

2.100 The name of a sub-fund of the CCIV may be changed by the CCIV:

•

on application by the CCIV; or

•

at the direction of ASIC.

[Schedule 1, item 4, subsections 1222Y(1) and 1222Z(1)]

2.101 An application by the CCIV must be made in the prescribed form and cannot be lodged with ASIC while the sub-fund is in liquidation. This ensures that creditors in a winding up situation are unambiguously able to identify the sub-fund for the purposes of any debt or claim against the sub-fund throughout the winding up process. See Chapter 7 of this explanatory memorandum for an explanation of the process for winding up a sub-fund. [Schedule 1, item 4, subsections 1222Y(1) and (2)]

2.102 If the proposed name meets the naming requirements under section 1222V, ASIC must change the sub-fund's name by altering its record of registration accordingly. The change takes effect once the record is altered. [Schedule 1, item 4, subsection (3)]

2.103 ASIC may also direct a CCIV to change a sub-fund's name if:

•

the name should not have been registered; or

•

ASIC has directed the CCIV to change its name under section 158 (necessitating a corresponding change to each of the names of the sub-funds of the CCIV).

[Schedule 1, item 4, subsection 1222Z(1)]

2.104 The CCIV has two months from the date on which it is given the direction to lodge an application to change the sub-fund's name. The CCIV commits a strict liability offence with a fine of up to 120 penalty units if it fails to comply with the direction from ASIC within this timeframe. This penalty supports the objective of ensuring that sub-funds are clearly and appropriately identifiable by third parties (including creditors and other persons engaging with the CCIV) by ensuring there is a strong, clearly articulated incentive for the CCIV to comply with a direction from ASIC. The penalty is consistent with the equivalent penalty for companies at subsection 158(2) of the Corporations Act. [Schedule 1, item 4, subsections 1222Z(1) to (3); Schedule 2, item 199, penalty for subsection 1222Z(2) inserted into Schedule 3 to the Corporations Act]

2.105 If a CCIV has failed to comply with ASIC's direction, ASIC may change the sub-fund's name to the expression "Australian Registered Fund Number" followed by the sub-fund's ARFN. ASIC may do this by altering the sub-fund's record of registration and the change will take effect once the record has been altered. [Schedule 1, item 4, subsections 1222Z(4) and (5)]

2.106 Regardless of how a sub-fund's name is changed, any change in a sub-fund's name does not:

•

create a new legal entity;

•

affect the sub-fund's existing property, rights or obligations; or

•

render defective any legal proceedings by or against the CCIV and relating to the sub-fund.

[Schedule 1, item 4, subsections 1222ZA]

Requirement to identify sub-fund of the CCIV on certain documents

2.107 A CCIV is required to set out a sub-fund's name and ARFN on all of its public documents and negotiable instruments that relate to that sub-fund. If the particular document or negotiable instrument relates to more than one sub-fund of the CCIV, then the name and ARFN of each relevant sub-fund of the CCIV must be set out on the document. [Schedule 1, item 4, subsection 1222W(1)]

2.108 This requirement is based on section 153 of the Corporations Act that requires a company to identify its name and ACN all public documents and negotiable instruments. It will require a CCIV to identify all relevant sub-funds of the CCIV on a broad range of documents, including documents that might give third parties rights or obligations in relation to an asset of a sub-fund of the CCIV.

2.109 'Public document' is defined under section 88A of the Corporations Act and includes a range of documents, such as documents lodged with ASIC and documents that are signed or issued by or on behalf of the CCIV in the course of a particular transaction or dealing. There are some carve-outs to the definition, including for example, a label.

2.110 'Negotiable instrument' is defined in section 9 of the Corporations Act and includes, for example, a cheque or letter of credit that is signed or issued by or on behalf of the CCIV.

2.111 The requirements for identifying the sub-fund on certain documents relating to the business of that sub-fund ensures persons who are dealing with the CCIV (being a legal person) can identify which part of the CCIV's business its rights, or obligations, are accruing against. This is important given that a sub-fund is not a separate legal entity from the CCIV, but it is a protected part of the CCIV's business that is strictly segregated from all other parts of the CCIV's business.

2.112 Consistent with the equivalent requirement for companies, a contravention of the requirement to identify the relevant sub-fund(s) on all public documents and negotiable instruments is a strict liability offence attracting a fine of up to 30 penalty units. This is consistent with the Guide to Framing Commonwealth Offences and with strict liability offences imposed for similar requirements in the existing law (see, for example, section 153 of the Corporations Act). [Schedule 1, item 4, subsection 1222W(2); Schedule 2, item 199, penalty for subsection 1222W(1) inserted into Schedule 3 to the Corporations Act]

Registers

2.113 As is the case for companies and registered schemes under Chapter 2C of the Corporations Act, CCIVs must keep a register of:

•

members;

•

holders of options over unissued shares and related options documents; and

•

debenture holders (if any).

2.114 In addition to the information captured for companies generally, a CCIV's register must also capture information at the sub-fund level. In particular, it must identify the relevant sub-fund to which each share or other security is referable to.

2.115 In addition, if a CCIV is a member in the CCIV (such as under cross-investment within the same CCIV, or by investing in another CCIV), the register must show the relevant sub-fund to which the CCIV's membership relates. In practice, this will be the sub-fund to which the shares referable to another sub-fund have been allocated as an asset. [Schedule 1, item 4, section 1222ZB; Schedule 2, items 53 to 56, notes to subsections 169(3), 170(1) and 171(1)]

Example 2.2 CCIV's company register

Ironbank CCIV has two sub-funds: Ironbank Equities Sub-fund and Ironbank Growth Sub-fund. Ros, Sarah, Lachlan and Rebecca are all investors in Ironbank CCIV. Ros and Sarah are investors in Ironbank Equities Sub-fund - they hold shares in Ironbank CCIV that are referable to Ironbank Equities Sub-fund. Lachlan and Rebecca are investors in Ironbank Growth Sub-fund - they hold shares in Ironbank CCIV that are referable to Ironbank Growth Sub-fund. Ironbank Growth Sub-fund has cross-invested into Ironbank Equities Sub-fund. This means that Ironbank CCIV has acquired, in respect of Ironbank Growth Sub-fund, shares in the CCIV that are referable to Ironbank Equities Sub-fund. Under this cross-investment, Ironbank CCIV is a member in Ironbank Equities Sub-fund - and this membership relates to Ironbank Growth Sub-fund. In addition to the information captured in a company register generally, Ironbank CCIV's company register must capture information about its members at the sub-fund level. It must show that:

•

Ros and Sarah are members that hold shares in Ironbank CCIV referable to Ironbank Equities Sub-fund;

•

Lachlan and Rebecca are members that hold shares in Ironbank CCIV referable to Ironbank Growth Sub-fund; and

•

Ironbank CCIV is a member that holds shares referable to Ironbank Equities Sub-fund, and this membership relates to Ironbank Growth Sub-fund.