The exposure draft of the Treasury Laws Amendment (Corporate Collective Investment Vehicle) Bill 2017 released on 21 August 2017, proposes to create a new Chapter 7A of the Corporations Act which will establish the Corporate Collective Investment Vehicle (CCIV) regime. The Bill follows from the Federal Government's commitment in the 2016-2017 budget to establish a regulatory framework for CCIVs and limited partnership investment vehicles.
In its current proposed form a CCIV is a corporate entity that is intended to receive the same tax outcomes as a managed investment trust. It should be noted that the Bill does not deal with the taxation issues, but separate draft legislation is expected to follow in due course.
Submissions are due on 21 September 2017.
Why introduce a the Corporate Collective Investment Vehicle regime?
The concept of the CCIV was first considered and recommended by the Johnson Report on Australia as a Financial Centre in November 2009 and was supported by the Board of Taxation's review of collective investment vehicles in 2015.
The policy objective in developing the CCIV is to align Australia's legal funds structures with structures commonly found in other jurisdictions, and hence increase the competitiveness of Australia's managed funds industry.
Unlike many comparable jurisdictions, the Australian funds market is dominated by unit trusts. By contrast, corporate and limited partnership investment vehicles are the norm in many countries in the Asia-Pacific region and Europe and are an internationally recognisable investment vehicle readily marketable to foreign investors.
The introduction of a regulatory framework for additional Australian collective investment vehicles is widely supported by the managed funds industry, however, there are concerns that the reforms will add another layer of complexity (given the far-reaching potential changes to corporate, partnership and tax laws). In any case, it is clear that these proposals will have a significant impact on Australia's managed funds industry.
Formation of a CCIV
A company limited by shares may register as a CCIV with ASIC similar to the framework under which a pooled investment vehicle (typically, a unit trust) can register with ASIC under the current management investment scheme regime in Chapter 5C of the Act.
The company proposing to be registered as a CCIV must have a "director" which must be a public company. Under the Bill, the director will operate the CCIV much like a responsible entity under the management investment scheme regime. The director must hold an Australian Financial Services Licence authorising it to act as a CCIV.
The director is subject to similar duties as those contained in the management investment scheme regime (ie. to act honestly, exercise powers with care and diligence, to act in the best interests of members, etc.). The director must also ensure the CCIV is operated consistently with the constitution and the compliance plan.
The Bill confers membership on a person if a person holds a share. A share in a CCIV is referrable to what is described as a "sub-fund".
A CCIV will have beneficial ownership of its assets, however, it must have at least one "sub-fund" which either relates to the entire business of the CCIV (where there will only be one sub fund), or relates to a particular part of the business of the CCIV (where there will be two or more sub funds). Sub-funds do not have separate legal personality and are a unique development under Australian law.
All assets of a CCIV must be allocated to a sub-fund and must be separated from the assets and liabilities of any other sub-fund. This is proposed to provide insolvency remoteness to each sub-fund such that the assets of one sub-fund will not be eligible to meet the liabilities of another sub-fund.
Retail v wholesale CCIVs
The Bill provides for two types of CCIVs: retail CCIVs and wholesale CCIVs.
Retail CCIVs are subject to greater compliance standards through requiring amongst other things, a depositary, a compliance plan and a constitution with prescribed content. These regulatory requirements are not applicable for wholesale CCIVs.
An offer of shares in a CCIV will be subject to the product disclosure statement regime rather than the prospectus regime.
A retail CCIV must have a "depositary" which performs a similar function to the custodian in the management investment scheme regime. There are, however, a few crucial differences.
The depositary must:
- be a public company or a foreign company registered under the Corporations Act;
- hold an AFSL; and
- be "independent" of the director.
In addition, the depository has supervisory duties in relation to the CCIV and must assume liability for loss of assets held on trust and loss resulting from breach of duty.
It is proposed that the taxation arrangements applying to Attribution Managed Investment Trusts will be extended to CCIVs subject to the satisfaction of certain criteria. However, exposure draft legislation relating to the specific tax treatment of CCIVs is yet to be released.
Where to from here?
The Bill only details the "core features of the CCIV regulatory framework". Further details, particularly in relation to the integration of CCIVs to Australia's current corporation law, will be released in the coming months. Under the Bill, ASIC will also have the ability to make rules by legislative instrument necessary or convenient to give effect to the Bill. However, this detail will not be issued prior to the passage of the Bill in Parliament.
Submissions are due on 21 September 2017. Clayton Utz will participate in the consultation process and we encourage clients to discuss the proposals contained in the Bill with us. Further information can be found on the Minister for Revenue and Financial Services' website.