Investors - How does the winding up of a managed investment scheme affect me?
What if the investment manager of my scheme is insolvent?
If the investment manager of your scheme becomes insolvent and an external administrator (usually a voluntary administrator, receiver and manager or liquidator) is appointed, your scheme may also be wound up. This will depend on:
1. Whether another investment manager can be found to replace your scheme investment manager. This, in turn, will depend on:
- the cost of administering the scheme projects
- whether the investment structure provides sufficient compensation to the new investment manager.
- the Court being willing to make an order appointing a temporary investment manager until the temporary investment manager is confirmed by a meeting of members or another investment manager chosen.
2. The availability and terms of engagement of a suitable operational manager to manage the various projects of a scheme. For example, investment managers of forestry and horticultural managed investment scheme projects quite often appoint experienced external managers to operate these projects.
3. The viability of the scheme. Factors impacting on the viability of the scheme include:
- the willingness and ability of existing scheme members to pay for any shortfall in operating expenses
- the long term profitability outlook for each scheme investment project
- the potential impact of increasing investor default levels on the operating capital of the scheme.
You may receive notice from the external administrator of the investment manager that an application has been made to court to wind up your scheme. It may take several months before a decision is made and can depend on whether any members of the scheme oppose the winding up application.
If you believe that the investment manager of your scheme is insolvent or if you have been informed that an external administrator has been appointed to your scheme's investment manager you should consider seeking legal and financial advice about how this may impact on your investment in the scheme, including any cost/fee obligations you may have under any project agreements, and any rights that you may have in accordance with the scheme's constitution and the Corporations Act.
What if my managed investment scheme is wound up?
There are a number of reasons for a scheme to be wound up including:
- the scheme comes to an end
- a court orders the scheme to be wound up
- the members pass an extraordinary resolution directing the investment manager to wind up the scheme
- the investment manager considers the purpose of the scheme has been accomplished or cannot be accomplished and makes an application to court to have the scheme wound up.
If your scheme is a registered managed investment scheme and is wound up, the winding up is to be conducted in accordance with the Corporations Act and the scheme constitution. If the winding up is ordered by a Court, the Court may make orders relating to the winding up. You can obtain a copy of the constitution from the scheme's investment manager. The investment manager is generally responsible for the winding up. Winding up involves realising all of the assets of the scheme, deducting reasonable costs (including unpaid creditors) and distributing the balance, if any, amongst members pursuant to the constitution and according to their respective interests in the scheme.
The Court may appoint an independent person, such as a liquidator, to oversee the winding up of the scheme. In certain circumstances, if the court orders that the scheme be wound up, the Court may allow the investment manager to wind up the scheme. In deciding whether to appoint an independent person to wind up a scheme, the Court may take into account a number of factors, including:
- the existence of or potential for uncertainty or dispute as to members' legal position
- differing views as to the appropriate method for bringing the scheme to an end, including the allocation of costs (e.g. where other schemes are involved)
- the need to distance the winding up from the investment manager and other persons associated with it because of actual or potential conflicts
- the need to assess rights that members may have against the investment manager
- the past conduct of the investment manager suggests that it is not in the best interest of members to allow the investment manager to wind up the scheme
- the effect the appointment of a liquidator will have on the value of the scheme's assets
- the expenses likely to be involved in different and competing proposals for winding up the scheme
- the value of the funds invested and administered by the investment manager
- the views of investors.
What information will I receive and when will I be paid?
If your managed investment scheme is wound up, your scheme's investment manager or the liquidator, if appointed, should keep you informed of the progress of the winding up. You should also be kept informed about how much of your investment you can expect to recover and when you will be paid. You may receive interim distributions during the course of the winding up, or a one-off distribution at the conclusion of the winding up.
It can also take several months, even years to know what return, if any, you can expect on your investment. The timing will depend on a number of factors including the complexity of the scheme (for example, whether other schemes are involved and whether the assets and liabilities of each scheme are readily identifiable) and the quality of the books and records of the scheme.
If you change your address, you should advise the scheme's investment manager or the liquidator as soon as possible to ensure that you continue to receive timely information about your investment.
When the winding up is complete, a registered company auditor must be engaged to audit the final accounts of the scheme. You should be provided with a copy of any report made by the auditor within a specified period after the investment manager receives the report from the auditor.
You should consider seeking financial advice in relation to how the winding up of the scheme will impact on your personal circumstances.
If you are experiencing financial hardship you can contact Centrelink or the Department of Veterans Affairs as you may be eligible for assistance. In some instances, the liquidator may contact the Commonwealth Minister for Families, Housing, Community Services and Indigenous Affairs requesting that the investment be excluded from the Aged Pension Deeming Provisions and for the purposes of determining an entitlement to a pension from the Department of Veterans Affairs.
What are my rights during the winding up process?
The scheme constitution should set out your rights during the winding up process, including:
- voting at meetings of members – if you owe money in respect of your investment, you may not be entitled to vote at meetings held during the winding up process unless you repay the outstanding amount
- your right to receive a copy of the auditor's report relating to the final accounts of the scheme
- your right to receive notice of termination of agreements or arrangements entered into with you in relation to the scheme.
Will I be able to write off my investment for tax purposes?
You should seek advice specific to your own personal circumstances in relation to the tax treatment of any loss on your investment.
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