ASIC has issued new industry-wide relief enabling the responsible entities of frozen funds to allow withdrawals by investors on hardship grounds.
Responsible entities (REs) who meet the conditions of the new relief arrangements become entitled to allow selective withdrawals for fund members suffering from specific grounds of hardship.
The relief is intended to facilitate fund members suffering hardship to withdraw limited amounts of their investments whilst balancing the interests of the other members in the frozen fund.
A fund will be a frozen fund where the RE has suspended or cancelled withdrawals, and ceased issuing new interests in the fund (including through distribution reinvestment plans or rights issues). This might have occurred for a range of reasons, but in the current COVID-19 climate, it is likely to be because of the systemic disruptions to investment caused by the pandemic.
The new relief arrangements are established under ASIC Corporations (Hardship Withdrawals Relief) Instrument 2020/778, which imposes a number of requirements on REs wishing to rely on it. These include:
- notifying ASIC that the RE wishes to rely on the relief (and notifying ASIC when it intends to cease relying on the relief);
- confirming in writing to ASIC that the board of the RE has considered the expected hardship withdrawals and believes on reasonable grounds that the scheme property will include adequate cash over the ensuring 6 months to meet hardship withdrawals from members and continue the day-to-day operations of the scheme;
- publishing on its website, and notifying members directly, that the RE is relying on the relief. ASIC also maintains a public register of frozen funds whose REs are relying on the relief;
- reporting quarterly to ASIC on prescribed matters relating to reliance on the relief;
- ensuring that any member making a hardship withdrawal meets at least one of four specified grounds of hardship, namely:
- urgent financial hardship (the need to meet reasonable and immediate living expenses);
- unemployment (for at least 3 months);
- compassionate grounds (these include medical costs and avoiding foreclosure on a principal place of residence, amongst others); or
- permanent incapacity;
- capping the number of hardship withdrawals a member can make to four per year, and for a maximum of $100,000 per year; and
- amending the scheme constitution to include provisions dealing expressly with hardship withdrawals, if the constitution does not already contain them. The relief instrument enables these amendments to be made unilaterally by the RE, without obtaining a special resolution of scheme members as would ordinarily be required for most constitutional changes.
The new relief supplements, rather than replaces, existing case-by-case hardship withdrawal relief which is also available to REs at ASIC’s discretion.
ASIC also reminds REs that the relief is specific to allowing hardship withdrawals; it does not relieve REs of their wider duties under the Corporations Act and at law generally.
The relief is welcome additional flexibility for REs, enabling them to assist members within carefully prescribed bounds. It is essential that REs wishing to rely on the relief comply with the requirements and conditions of the relief – if you require advice on those requirements and conditions, or how to implement reliance on the relief, please let Addisons Corporate Advisory team know.
This article is part of the 2020 Financial Services Newsletter, click here to download.
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