The Government released the first tranche of the Corporate Collective Investment Vehicle (CCIV) Bill for public consultation. The CCIV complements the Asia Region Funds Passport initiative, which the Government introduced into Parliament earlier this year. In this update, we consider the exposure draft legislation.
- The first tranche of the legislation deals with the basic features of a CCIV, including in relation to sub-funds and depositaries. The draft legislation revises an earlier draft of the first tranche of the CCIV regime legislation.
- The draft legislation differs from the earlier draft in material respects including requiring all sub-funds to be registered, having new and more detailed sub-fund asset and liability allocation rules, relaxing the content requirements of CCIV constitutions but elevating them to a statutory contract, and reducing the independence and reporting requirements of depositaries.
- A second tranche of the CCIV regime legislation will be released later.
The Government has released for public consultation the first tranche of the Treasury Laws Amendment (Corporate Collective Investment Vehicle) Bill 2018 (Cth) and explanatory materials.
The CCIV will offer an internationally recognisable investment vehicle which can be readily marketed to foreign investors, including through the Asia Region Funds Passport.
Changes to earlier draft Bill
The exposure draft of the legislation includes revisions from the September draft legislation.
In particular, the new exposure draft legislation provides:
- A revised draft of the new chapter containing the core provisions establishing how the CCIV and its sub-funds will operate.
- Amendments to apply Chapters 2A to 2P of the Corporations Act (such as the meetings rules and members’ rights and remedies) to CCIVs.
- An outline in the explanatory materials of the proposed legislative approach to depositary independence.
The second tranche of consultations will cover the remaining substantive aspects of the regulatory framework for CCIVs, including external administration, takeovers, compulsory buy-outs and acquisitions, disclosure, financial services and licensing, and penalty provisions.
Revised draft tax legislation is also expected later this year. The effectiveness of the tax regime will be a key to the commercial success of the CCIV.
Some new features of the draft legislation
Set out below are some interesting differences between the draft legislation of September 2017 and the current exposure draft of the legislation. We do not set out all differences here, but we will continue to review the draft legislation and be engaged with industry groups regarding its development.
Retail CCIV definition
The definition of ‘retail CCIV’ is relevantly defined by reference to whether a person was required to be given a Product Disclosure Statement for the issue of a security in the CCIV (noting that it is proposed that the issue of securities in a CCIV will be subject to the PDS regime and not the prospectus regime): section 1232F.
Constitution is a statutory contract
Similar to a company, a CCIV’s constitution and any replaceable rules that apply to the CCIV also have effect as a contract between the corporate director and each member (section 1232D).
Contents of a retail CCIV constitution
It is proposed that the constitution of a retail CCIV no longer must make adequate provision for the consideration that is to be paid to acquire a share in the CCIV: section 1232G.
All sub-funds require registration
Under the current exposure draft of the legislation, a sub-fund is established on registration by ASIC (section 1233) and no part of the business of a CCIV may be operated otherwise than as a registered sub-fund of the CCIV (section 1233A).
Allocation of assets to sub-funds
New allocation rules are proposed, including a default rule to the effect that assets that are not automatically allocated to a sub-fund (such as share subscriptions, assets acquired with share subscriptions and assets that relate solely to the business of the sub-fund) are allocated on the basis of the proportions that are fair and reasonable in the circumstances: section 1233K.
Assets and liabilities of sub-funds
New rules are proposed that are designed to protect the distinct investment activity carried on by each sub-fund (with its discrete portfolio of assets and its own investment objectives) from the impacts of the investment activity carried on by the other sub-funds of that CCIV. For example, the assets of a sub-fund may only be applied for a specified purpose, an asset of a CCIV that is not automatically allocated to a sub-fund of a CCIV and must be converted into money or into two or more fungible assets may not be applied for any purpose other than for the purpose of converting the asset, and the assets of different sub-funds must not be applied jointly to acquire a single asset (section 1233L). The rules regarding the allocation of liabilities to different sub-funds includes a requirement that the proportion that is fair and reasonable in the circumstances must reflect the extent to which the liability relates to the business of the sub-fund (section 1233Q).
The depositary requirements have been changed. For example, if a CCIV acquires an asset that is required to be held by the depositary, it must transfer that asset to the depositary immediately after it is acquired (section 1234), and ASIC may (in CCIV rules) exempt a class of assets of a CCIV from the requirements for them to be held by the depositary (section 1234A). Section 1234D states that the independence requirement for depositaries is under development, however, the exposure draft explanatory materials outlines the proposed operation of the depositary independence requirements as a guide to the development of the legislation. The key policy principle regarding independence appears to be that the depositary (and any other entity performing depositary functions) must be independent from the CCIV, the corporate director, and any other entity that is performing corporate director functions, with the nature and degree of independence that is required depends on which two entities are being considered in terms of the relationship between them. Further, under the current draft legislation the depositary’s duty of supervisory responsibility is to take reasonable care to ‘verify’ (rather than ‘ensure’ under the previous draft legislation) that the CCIV carries out its activities in a manner that complies with the CCIV’s constitution and the provisions of the Corporations Act 2001 (section 1234L). Furthermore, only material breaches need to be reported by the depositary to ASIC (section 1234P).
As part of the documentation issued for public consultation, the Treasury has released a cover note which provides a table setting out the key elements of the CCIV regime and shows the relevant sections and references. We consider this to be useful and provide a link here for reference.