09-218MR ASIC grants transitional relief from regulation for funded class actions
Wednesday 4 November 2009
ASIC today announced its intention to grant transitional relief to lawyers and litigation funders involved in legal proceedings structured as funded class actions.
The relief, which will apply until 30 June 2010, is from the requirements that would otherwise apply to funded class actions as ‘managed investment schemes’ under Chapter 5C and Chapter 7 of the Corporations Act 2001 (the Act). These requirements include:
- appointing an AFS licensed public company as 'responsible entity' to operate the scheme
- adopting a complying constitution and compliance plan for the scheme
- registering the scheme with ASIC
- preparing a Product Disclosure Statement for the scheme
- providing ongoing disclosure to members of the scheme.
The Full Federal Court’s recent decision that a funded class action was a ‘managed investment scheme’ within the meaning of the Act has the potential to disrupt the conduct of a number of class actions currently underway.
ASIC will grant transitional relief to avoid any disruption that could adversely impact plaintiffs in those actions, or interfere with the timely and efficient conduct of the subject litigation. The relief will allow time for Government and ASIC to consider and consult on how funded class actions should be regulated under the Act in future. Depending on the outcome of that process, existing class actions may need to be restructured to meet the requirements of the Act by the end of the relief period.
Relief will generally be granted, on individual application, to lawyers and litigation funders involved in the conduct of class actions that were commenced before 4 November 2009.
Applications in respect of class actions to be commenced after that date will be considered separately and ASIC will assess whether or not and on what terms it will grant transitional relief. Applications should be prepared in accordance with ASIC Regulatory Guide 51: Applications for Relief and lodged through applications@asic.gov.au.
Background
On 20 October 2009 the Full Court of the Federal Court handed down its decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147. The Full Court held that a funded class action currently being maintained against Brookfield Multiplex was a ‘managed investment scheme’ within the meaning of section 9 of the Corporations Act.
A managed investment scheme must be registered with ASIC in certain circumstances, including where it has more than 20 members or is promoted by a professional promoter. To qualify for registration, it must be operated by a public company that holds an Australian financial services licence and must have a constitution and a compliance plan that meet the requirements of Chapter 5C of the Act.
The offer of interests in a registered managed investment scheme must generally be made through a complying Product Disclosure Statement (PDS) that contains information about the scheme.
In deciding to grant the relief, the Commission's considerations included the consequences of the decision in Brookfield Multiplex, the options currently available to existing class action plaintiffs and the consequences of ASIC not providing relief, the case for and against regulating class actions as managed investment schemes and what additional obligations would be imposed if class actions were so regulated.
Commission noted the full Federal Court has not yet made orders in the Brookfield Multiplex matter, but has ordered a timetable for submission on the form of orders over a period until 12 November 2009, and there is likely to be a further period while the Court considers those submissions before orders are made, perhaps in early December 2009.
Commission also noted that without any form of relief from ASIC, existing class actions with members who would qualify as retail clients under the Corporations Act will immediately suffer considerable delay, expense, uncertainty and disruption as a consequence of the decision.
ASIC has power under the Act to modify or grant exemptions from some or all of the regulatory requirements. Government may, by regulation, declare a particular arrangement not to be a managed investment scheme.
ASIC Website: Printed 02/10/2010
