Submission to CAMAC

Managed Investment Schemes

Clarendon Lawyers

Table of Contents

Table of Contents 2 1 Introduction 3 1.1 Submission 3 1.2 Outline of Submission 3 2 Our Experience 4 2.1 Overview 4 2.2 Trust based MIS 4 2.3 Contract based MIS 4 3 General comments and observations on MIS and the Discussion Paper 5 3.1 Complex Group MIS 5 3.2 Members informational disadvantage 5 3.3 Members‟ Rights 6 3.4 Significance of MIS industry and effect of reforms 7 4 Detailed Response to Discussion Paper 7 4.1 Overview 7 4.2 Chapter 2 – Current Position 7 4.3 Chapter 3 – Proposed key legislative reforms 8 4.4 Chapter 4 – Transfer of a Viable MIS 16 4.5 Chapter 5 – Restructuring a potentially viable MIS 25 4.6 Chapter 6 – Winding up a non viable MIS 31 4.7 Chapter 7 – Other matters 37 5 Other Matters 38 5.1 Additional issues facing MIS 38 5.2 Difficulties with replacement of an RE 39 5.3 Entrenching provisions 42 5.4 Section 173 – access to register of members 45 5.5 Compensation arrangements 45 Schedule 1 – Cases 48 Schedule 2 – Observations on failed agricultural MIS 53

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Submission to CAMAC by Clarendon Lawyers Date 4 November 2011

1 Introduction 1.1 Submission 1.1.1 This submission is in response to the Corporations and Markets Advisory Committee‟s Managed Investment Schemes Discussion Paper (Discussion Paper).

1.2 Outline of Submission 1.2.1 There are a number of serious issues facing the future of managed investment schemes (MIS) and the MIS industry. 1.2.2 Many of these arise because of shortcomings of the statutory and regulatory regime governing MIS and the MIS industry. A number of these shortcomings are identified and discussed in the Discussion Paper. In particular, we note the issues identified concerning the regulatory and statutory framework for dealing with distressed and/or insolvent responsible entities (REs) and MIS, which we consider requires careful and considered reform. However, there are a number of other issues facing the MIS industry which are not addressed in the Discussion Paper and which we submit must also be considered as part of any legislative reform. 1.2.3 A substantial portion of the Discussion Paper is concerned with the operation of MIS from the perspective of creditors. In our submission we have sought to amplify the perspective of members and REs and also bring into discussion the impacts of any reform on the broader investment community and financial services industry. 1.2.4 Similarly, much of the Discussion Paper appears to be responding to the difficulties faced by insolvency practitioners (which we refer to generally as „liquidators‟) in the recent insolvencies of agricultural MIS (Agri MIS). In our submission, many of these difficulties arose from liquidators attempting to treat the MIS like companies and treat members like shareholders, operating as they were within the statutory insolvency regime applying to companies and the REs to which they were appointed. 1.2.5 Members of MIS have different rights to members of companies, and the differences between MIS and companies are a source of important diversity of investment opportunity in the financial services sector. In our view, this diversity should not be sacrificed in the interest of commercial certainty or simplicity for creditors. Steps to address the inadequacy of the current legislative insolvency regime in respect of MIS should acknowledge the fundamental elements of MIS and their differences to corporations, rather than attempt to dissolve the differences between an interest in an MIS and a share in company in order to reshape a square peg to fit into a round and, perhaps for some, convenient hole. 1.2.6 We agree that greater certainty for all parties is required to address the legal, structural and regulatory issues identified in the Discussion Paper and in this submission. We consider that all parties involved in the MIS industry would benefit from such certainty. However we consider that if any of these parties require greater protection, it i