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 11: CCIVs - Other amendments to corporations and financial services law

Outline of chapter

11.1 This Chapter outlines consequential amendments to Chapter 9 of the Corporations Act, contained in Part 8B.8 of the Bill, and to the ASIC Act. These amendments extend ASIC's powers under the ASIC Act and ensure that relevant provisions apply appropriately to CCIVs.

Context of amendments

11.2 Chapter 9 of the Corporations Act includes provisions that deal with a number of miscellaneous matters, including registers, audit companies, offences and the power of the Courts. The new law modifies certain provisions to ensure that they operate appropriately in relation to CCIVs and their corporate directors.

11.3 The ASIC Act enables the majority of ASIC's powers, including investigative powers, and the power to conduct hearings for the purposes of its powers and functions. The ASIC Act also includes ASIC's powers in relation to unconscionable conduct and consumer protections for financial services. Amendments to the ASIC Act ensure that ASIC can appropriately exercise these powers in relation to CCIVs.

11.4 Many of ASIC's powers under the ASIC Act intersect with financial services framework in Chapter 7 of the Corporations Act, which is modified for CCIVs by Division 4 of Part 8B.7 of Schedule 1. As such, most of the amendments to the ASIC Act are to ensure consistency between Chapter 7 of the Corporations Act and the ASIC Act.

Summary of new law

11.5 Part 8B.8 modifies the operation of certain provisions in Chapter 9 of the Corporations Act to ensure:

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provisions relating to the books of a company apply correctly to CCIVs;

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certain offence provisions apply to CCIVs and their corporate directors appropriately; and

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the powers of the AAT and the courts in relation to defects in decision making and powers of review cover CCIVs.

11.6 Amendments to the ASIC Act ensure that:

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the unconscionable conduct provisions in Division 2 of Part 2 adequately capture the kinds of financial services that relate to CCIVs;

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there is consistency in the treatment of financial services between the ASIC Act and Chapter 7 of the Corporations Act; and

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ASIC's powers and functions work effectively in relation to CCIVs.

Comparison of key features of new law and current law

Detailed explanation of new law

Amendments to Chapter 9 of the Corporations Act made by Part 8B.8

Amendments relating to director identification numbers

11.7 Directors of companies are generally required to obtain director identification numbers. However, as the ACN of the corporate director of a CCIV will be sufficient to identify it, it is not eligible to also have a director identification number. [Schedule 1, item 4, section 1242; Schedule 2, item 183, note to subsection 1272B(1)]

Amendments relating to registers and books

11.8 Documents lodged with ASIC are generally able to be viewed by the public. However, certain documents are not publicly available as they include confidential information. This provides protection for potentially sensitive or confidential information to ensure there is appropriate oversight for ASIC. [Schedule 2, item 184, note to subsection 1274(2)]

11.9 The constitution of a wholesale CCIV is also exempted from public inspection. This provides equivalent treatment to wholesale MISs which are not required to provide ASIC with a copy of their constitution, such that the constitution is not available for public inspection. [Schedule 1, item 4, section 1242A]

11.10 Any book of the CCIV that the Corporations Act requires to be made available for inspection may be inspected in accordance with the rules that apply to proprietary companies. This includes the requirement that the CCIV must make a book available within seven days if a person has requested to inspect it. [Schedule 1, item 4, section 1242B; Schedule 2, item 185, note to subsection 1300(2A)]

11.11 It is an offence for a person to falsify or destroy securities of a company, or to falsify or destroy the books of, or relating to, the affairs of a company. This applies to a person who is a current or former officer, employee, or member of a company. Modifications are made to ensure that it is also an offence for a person who is or has been an officer of the CCIV, an officer of the corporate director or an employee of the corporate director to falsify or destroy the CCIV's securities or books. [Schedule 1, item 4, section 1242C; Schedule 2, item 186, note to subsection 1307]

Amendments relating to offences

Specific offences under Part 9.4 of the Corporations Act

11.12 It is an offence for a corporation, such as a CCIV, to make a false or misleading statement that relates to its capital. It is also an offence for an officer or employee of a corporation to make false or misleading statements to certain people (including auditors or operators of financial markets) relating to the affairs of the corporation.

11.13 It is a defence to these offences if the corporation, officer or employee made the statement in reasonable reliance on information given to them by a third party. Where the person is a corporation, a third party is someone other than a director, employee or agent of the corporation. Where the person is an individual, a third party is someone other than an employee or agent of the individual.

11.14 For the purposes of these offences (found in Part 9.4 of the Corporations Act), modifications apply to ensure that persons that have a relationship with the corporate director are also treated as having a relationship with the CCIV. This ensures that the defence operates appropriately for CCIVs, given that a CCIV is a separate legal entity to its corporate director. [Schedule 1, item 4, section 1242D; Schedule 2, items 187 and 188, note to subsections 1309(1) and (2), and note to subsections 1309(9) and (10)]

Offences generally under Part 9.4 the Corporations Act

11.15 Where a prosecution of an offence against the Corporations Act has started, or if ASIC believes that a prosecution should be started, ASIC may require certain persons to assist in the prosecution. If the defendant in such a prosecution is a CCIV, ASIC may require assistance from a current or former corporate director, liquidator or agent of the CCIV, or a current or former officer, employee or agent of the corporate director. [Schedule 1, item 4, section 1242D; Schedule 2, item 190, note to subsection 1317(1)]

11.16 Where a person is being prosecuted for a contravention of certain provisions of the Corporations Act, including Chapter 8B, the Court may order an injunction under section 1324 on the conduct or conduct of that kind. For that same contravention, the Court may also direct the person to disclose certain information or publish an advertisement in accordance with the Court's order. The Court also has the power to make other orders for these contraventions, such as an order to refuse to enforce provisions of a contract. [Schedule 2, items 194 and 195, note to sections 1324A and 1324B, and paragraph 1325(7)(j)]

11.17 The default offence that applies to contraventions of certain parts of the Corporations Act under existing section 1311 of the Corporations Act is not available for any contravention of new Chapter 8B. If a contravention of a provision in new Chapter 8B gives rise to an offence, then it is specified in the relevant provision. The penalty for the contravention is also specified for each relevant provision and included in Schedule 3 to the Corporations Act. This is the case even if the provision in new Chapter 8B is based on an existing provision of the Corporations Act where a default offence is available. [Schedule 2, items 189 and 199, paragraph 1311(1A)(de) and new items in the Schedule 3 to the Corporations Act]

11.18 For example, a contravention of a provision in Chapter 5C (about registered schemes) may attract a default offence under existing section 1311 of the Corporations Act. Certain provisions in new Chapter 8B are modelled on existing provisions of Chapter 5C. A contravention of a provision under new Chapter 8B does not attract a default offence. However, where appropriate and necessary, the relevant provision specifies that it is an offence and the penalty for the offence is included in Schedule 3 to the Corporations Act.

Protections for whistleblowers

11.19 The protections for whistleblowers in Part 9.4AAA are extended so that certain persons connected to the corporate director may make disclosures that relate to the CCIV. A CCIV is a company and, accordingly, is a 'regulated entity' within the meaning of section 1317AAB of the Corporations Act.

11.20 In addition to the individuals that are eligible for whistleblower protections under section 1317AAA of the Corporations Act, the following individuals may make covered disclosures in relation to a CCIV:

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an officer of the corporate director of the CCIV;

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an employee of the corporate director of the CCIV; and

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a relative of an officer or employee of the corporate director of the CCIV; or

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a dependent of an officer or employee of the corporate director of the CCIV (such as a spouse).

[Schedule 1, item 4, paragraphs 1242E(1); Schedule 2, item 191, note to the heading for Part 9.4AAA]

11.21 Certain persons may receive a covered disclosure in relation to a CCIV under section 1317AAC of the Corporations Act (such as the CCIV's corporate director). In addition, an officer or a senior manager of the corporate director of the CCIV may receive covered disclosures. [Schedule 1, item 4, paragraph 1242E(2)]

11.22 The corporate director of a CCIV, being a public company, must maintain a whistleblower policy under section 1317AI of the Corporations Act. The corporate director's whistleblower policy must cover certain matters about protected disclosures in relation to the CCIV, including:

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information about to whom disclosures in relation to the CCIV may be made in order to qualify for protection, and how they may be made;

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information about how the CCIV will support and protect whistleblowers;

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information about how the CCIV will investigate disclosures that qualify for protection;

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information about how the policy is to be made available to the officers of the CCIV; and

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any other matters that may be prescribed by regulations.

[Schedule 1, item 4, subsection 1242E(3)]

Powers of the courts

11.23 A Court has the same powers in relation to an irregularity or defect in a meeting of a sub-fund or a joint meeting of creditors and members of a sub-fund of a CCIV as it has in relation to an irregularity or defect in a meeting of members or members and creditors of a corporation. [Schedule 1, item 4, section 1242F; Schedule 2, item 193, note to subsection 1322(1)]

Meaning of financial services in the ASIC Act

11.24 Outside Division 2 of Part 2 of the ASIC Act, key terms in the ASIC Act have the same meaning as in Chapter 7 of the Corporations Act. Where Division 4 of Part 8B.7 of the Corporations Act modifies the meaning of a provision in Chapter 7 as it applies to CCIVs, then the modified meaning also applies in relation to CCIVs in the ASIC Act. A note to the definition to financial service confirms this approach. [Schedule 3, item 4, definition of financial service in subsection 5(1)]

11.25 To provide consistency with the treatment of financial services that are provided by the CCIV across the ASIC Act and Chapter 7 of the Corporations Act, the corporate director of a CCIV is also taken to provide financial services that are provided by the CCIV. This ensures that the corporate director is responsible for actions of the CCIV that constitute the provision of financial services. See Chapter 9 of this explanatory memorandum for more information on the treatment of financial services provided by a CCIV in Chapter 7 of the Corporations Act. [Schedule 3, item 14, section 243F]

Amendments relating to ASIC's investigation and information gathering powers and CCIVs

11.26 ASIC has certain powers in relation to bodies corporate and their employees, agents and officers. These include powers to request information or documents, or to hold hearings. Amendments ensure that these provisions appropriately reflect the relationship between a CCIV and its corporate director.

11.27 The definition of 'eligible person' extends to the corporate director of a CCIV or liquidator of a sub-fund, as well as the officers of the corporate director or liquidator. This allows ASIC to request books relating to the affairs of the CCIV from the corporate director or its officers, or to require that person to give assistance to ASIC in connection with a prosecution under an offence in the Corporations legislation. [Schedule 3, items 1 to 3, subsection 5(1), definition of eligible person]

11.28 At a hearing held by ASIC, a CCIV may be represented by an officer or employee of the corporate director who has been approved by ASIC, or by the liquidator of a sub-fund. Similarly, where a person can make a requirement of a CCIV under the ASIC Act's investigation and information-gathering provisions, then that requirement may also be made of a person who is or has been an officer of the CCIV or an officer or employee of the corporate director. [Schedule 3, items 11 and 12, subsection 59(6) and section 84]

11.29 Section 93AA of the ASIC Act sets out the process by which ASIC may accept an enforceable undertaking from a person (including CCIVs and corporate directors). This section continues to apply, however the new law applies in relation to conduct by a corporate director that concerns a CCIV. This bespoke provision ensures that the same protections and remedies can apply in relation to a corporate director and CCIV as apply to a responsible entity and a registered scheme. [Schedule 3, item 13, section 93BA]

Amendments to Division 2 of Part 2 of the ASIC Act

Definitions in Division 2 of Part 2 of the ASIC Act

11.30 Division 2 of Part 2 of the ASIC Act provides the framework for ASIC's jurisdiction over unconscionable conduct and other consumer protections in relation to financial services. This Division has its own defined terms, even where that same term is defined for the rest of the ASIC Act. To provide consistency across the Corporations Act and ASIC Act, the amendments to the ASIC Act are similar to those made to Chapter 7 of the Corporations Act.

11.31 Amendments to Division 2 of Part 2 of the ASIC Act ensure that the definition of financial service for the purposes of that Division include financial services related to CCIVs; specifically the financial services of 'operating the business and conducting the affairs of a CCIV' (undertaken by the corporate director). For the avoidance of doubt, operating a CCIV, operating the business and conducting the affairs of a CCIV, or holding the money or property of a CCIV do not constitute providing a custodial or depository service. [Schedule 3, items 5 to 8, paragraphs 12BAB(1)(g) and 12BAB(14)(d), subsection 12BAB(1) and note to section 12BAB(14)]

Defences for prosecutions under Subdivision G of Division 2 of Part 2

11.32 It is a defence to a prosecution under Subdivision G of Division 2 of Part 2 of the ASIC Act if the defendant can establish the existence of certain facts, including that the contravention was due to reasonable reliance on information supplied by another person, or that the contravention was due to the act or default of another person. However, this does not apply where the other person is an employee, agent, or director of the defendant.

11.33 Amendments provide that where the defendant is a CCIV, the CCIV may not use this defence where the other person is the corporate director or an agent of the CCIV, or an employee, director or agent of the corporate director of the CCIV. These amendments ensure that the defence operates appropriately for CCIVs, given that the CCIV is a separate legal entity to its corporate director and is a collective investment vehicle without employees. [Schedule 3, items 9 and 10, paragraph 12GI(2)(b)