In brief - Corporations Regulations 2001 amended
On 12 July 2012, the Governor General made Corporations Amendment Regulation 2012 (No. 6) (Amending Regulation) under the Corporations Act 2001 (Act) which amended the Corporations Regulations 2001 (Regulations) to exclude litigation funding schemes and similar arrangements from the definition of managed investment schemes (MIS) in the Act.
The need for amendment to the Act and Regulations
Earlier this year, our articles Recent developments in litigation funding in Australia and the UK and Litigation funding - transitional relief extended until 30 September 2012 dealt with ASIC's response to the effect of the full Federal Court of Australia’s decision in the Brookfield Multiplex case, which held that the MIS provisions of the Act apply to such actions.
ASIC by way of registered class orders granted transitional relief to lawyers and litigation funders involved in legal proceedings structured as funded class actions. The granting of this transitional relief was by class order [CO 10/333] which issued on 5 May 2010 and was extended on five subsequent occasions. Such relief was necessary whilst the legislative response was considered and implemented. Public consultations occurred on drafts of the Amending Regulation.
The effect of the Amending Regulation
As anticipated, the Amending Regulation amends the Corporations Act to:
- carve out litigation funding schemes from the definition of an MIS
- ensure that anyone providing a financial service in relation to a litigation funding scheme does not need to obtain an Australian Financial Services Licence (AFSL) from ASIC - the exemption is conditional upon the person providing the financial service maintaining for the duration of the scheme, adequate arrangements for managing any conflict of interest that may arise in relation to activities undertaken in relation to the scheme and also following the written procedures set out in the Amending Regulation as constituting an adequate arrangement for managing conflicts of interest
- exempt AFSL holders and authorised representatives from the requirement to comply with the requirements of part 7.7 of the Corporations Act when offering a financial service in relation to a litigation funding scheme eg a financial services guide or statement of advice need not be provided to a client before providing such financial service or personal advice
- exempt the litigation funder from anti-hawking provisions in section 992A of the Act - enabling litigation funders to make unsolicited invitations to persons to become a member of a class action or other litigation funding scheme
The government in the explanatory statement accompanying the Amending Regulation emphasises that litigation funders are still subject to the general consumer provisions in the Competition and Consumer Act 2010 and the Australian Securities and Investments Commission Act 2001 in matters such as unconscionable or misleading conduct.
Commencement of the Amending Regulation
The Amending Regulation commences on the day that is six months after it is registered. The Amending Regulation was registered on 13 July 2012.
The transitional relief from the MIS provisions of the Act granted by ASIC is presently extended to 30 September 2012 by means of ASIC class order [CO 12/158] .
One would expect a further class order to be issued by ASIC extending the transitional relief from 30 September 2012 to the commencement of the Amending Regulation on 14 January 2013.
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