A new corporate structure, the Corporate Collective Investment Vehicle (CCIV), is now a reality and will be included in the Companies Act from July 1, 2022. What the fund management industry needs to know on the new structure of the CCIV and what will be its implications for the future regulation of financial services?
Despite a long gestation period that began with a valid recommendation from the Johnson Report in 2009, new legislation was passed on February 22, 2022, establishing the corporate structure known as the “Collective Investment Vehicle of business ” (CCVI).
The creation of the CCIV structure aims to improve the Australian fund management industry by introducing a more globally recognizable investment structure; focusing on Australia as a regional financial services hub. The CCIV was born out of concern that offshore investors perceived the traditional trust-based structure of our domestic managed investment programs as “inappropriate for large-scale fund management”.
The CCIV is therefore an alternative investment vehicle to managed investment systems, with proponents suggesting that the familiarity of the corporate fund structure with many overseas investors will attract more offshore investment into Australian funds.
The new law will insert a new chapter 8B into the Companies Act 2001 (Cth) (Corporations Act) containing the main provisions describing the creation of CCIVs and their operational and regulatory requirements.
Fund management firms can begin registering their CCIV proposals with ASIC from July 1, 2022.
What are the characteristics of a CCIV?
A CCIV is an investment vehicle with a corporate structure, having the legal form of a public limited company.
To develop this, and like other business structures, a CCIV:
- be recognizable as a separate legal entity, and therefore able to enter into contracts in its own name and manage its own shares of the company;
- must have a constitution;
- will have most of the powers, rights, duties and characteristics of a corporation; and
- will generally be subject to the ordinary rules of corporations under the Corporations Act, unless otherwise stated.
Some key features of this new regime are:
- a single CCIV can act as an “umbrella vehicle”, offering several products (ie sub-funds) and investment strategies within the same vehicle. The objective is that each compartment effectively functions as a protected cell for asset and liability purposes;
- the CCIV will have a single social administrator – with this social administrator:
- be an unlisted public company; and
- holder of an Australian Financial Services License (AFSL) which authorizes him to “operate the goodwill and conduct the business of the CCIV” (this is a new AFSL authorization specific to the CCIV);
- the CCIV must not have any managers or employees other than the sole corporate officer (the latter may, however, have his own corporate officers);
- the CCIV is exempt from the obligation to hold an ASFL in order to issue securities in the CCIV. Instead, as mentioned above, the corporate officer must hold the corresponding authorization under their AFSL; and
- a CCIV can be either a retail CCIV or a wholesale CCIV – note however that a single retail client in a CCIV will make the CCIV a “retail CCIV”, which is subject to greater disclosure (this is i.e. product disclosure statements (PDS)) and possibly other regulatory obligations, such as design and distribution obligations.
What is the structure of a CCIV?
The statement of reasons for the Corporate Collective Investment Vehicles Framework and Other Measures Bill 2021 (Cth) provides the following diagram, which illustrates how the new CCIV regulatory framework works:
How to register a CCIV?
A CCIV will be registered with ASIC if it meets certain basic registration requirements, the main requirements being that it must:
- be a public limited company;
- have a constitution that meets prescribed content rules (as is the case for a managed investment plan);
- have only one proposed corporate officer who is a public limited company holding an AFSL authorizing it to “operate the activity and conduct the business of the CCIV”; and
- have at least one compartment, each compartment having at least one member.
It is important to note that when registering:
- the CCIV will have a legal personality. Although the compartments do not have separate legal personalities, the new regime does have compartments operating as separate protected cells (each with assets and liabilities);
- the CCIV must have the expression “Commercial Collective Investment Vehicle” at the end of its name;
- the name of a sub-fund must also comply with certain naming requirements under companies law; and
- each registered fund will be assigned an “Australian Registered Fund Number” (ARFN).
Registration of a subsequent sub-fund is done through a stand-alone process and any securities issued by the CCIV must be issued in relation to a specific sub-fund.
Unlike some other business structures, a CCIV cannot change business type once registered as a CCIV.
What are the expectations of the sole entrepreneur?
A sole corporate officer of a CCIV:
- is required to obtain the newly introduced AFSL authorization to “operate the business and conduct the business of the CCIV” – a single AFSL can cover the operation of the business and the conduct of the business of more than one CCIV;
- must ‘operate the business and conduct the affairs of the CCIV’ in accordance with the terms of its AFSL authorisation, the constitution of the CCIV and the Corporations Act, which includes the duties of chief executives such as the duty to act honestly and in the best interest of the members, as well as the administrator functions specific to CCIVs (which apply separately to retail and wholesale CCIVs). For example, an additional mission of a trade-specific administrator would be to ensure that the assets of a sub-fund of a CCIV are valued at regular intervals; and
- is generally responsible for the conduct of CCIV, and therefore will be subject to criminal and/or civil penalties for its violations of its ASFL or applicable law – given that CCIV has no other officers or employees outside of sole director of the company, the CCIV itself will not be liable for breaches on its behalf.
What are the implications for licensing and disclosure of financial services?
The new regime will amend the provisions of Chapter 7 Licensing of the Corporations Act relating to the allocation of licensing, conduct and disclosure responsibilities.
Financial services license
As mentioned above, a single corporate officer operating a CCIV can only “operate the business and conduct the business of the CCIV” if he is authorized to provide this financial service as part of his AFSL. As such, this new financial service will be added to the list available under Section 766A of the Companies Act, alongside “providing advice on financial products” and “dealing in a financial product”.
However, a corporate officer will not be authorized to issue securities under this new AFSL authorisation. Indeed, the CCIV will itself issue the securities pursuant to an AFSL holding exemption available under the Law on legal persons (specific to CCIVs issuing securities).
Other entities that provide financial services in connection with or on behalf of a CCIV (for example, an agent of a CCIV), may also require an AFSL in relation to those services.
A CCIV (rather than its corporate director) is generally responsible for providing retail clients with a PDS relating to the relevant compartment, prior to issuing the retail client’s securities (eg, shares and debentures) in the relevant compartment. The compartment’s PDS may contain additional information relating to the CCIV as a whole. This differs from the requirement that a retail client must receive a prospectus for the issue of securities under Part 6D.2 of the Corporations Act. The PDS of a CCIV are generally subject to the same content requirements as those which usually apply to the PDS of other financial products. This approach is intended to ensure consistency with the disclosure provisions that apply to registered plans. The Regulations also create a category of “single compartment products” which are intended to be similar to simple managed investment schemes – meaning that the simple PDS regime will apply to these compartments.
Other important legislative changes
The new law proposes consequential amendments to other laws to support the implementation of CCIV, such as amendments to the Australian Securities and Investments Commission Act 2001 (Cth), Personal Property Security Act 2009 (Cth) and tax legislation.
The ASX is also consulting on proposed changes to the ASX Listing Rules and Operating Rules to allow for the listing of CCIVs and sub-funds.
Changes to the tax legislation will ensure that the tax treatment of CCIVs aligns with the current treatment of investment trusts managed by attribution (AMIT), providing investors with the benefits of a transfer tax (provided a sub-fund does not trip the traditional public trading trust test that applies to managed investment funds).
Was it worth the wait?
A key objective in introducing the CCIV scheme was a desire to increase the competitiveness of the Australian fund management industry by providing greater choice and an internationally recognizable fund structure. Whether that will become a reality remains to be seen, as there are still several issues to be ironed out later.
For example, the proposed regime has not yet clarified how, if at all, existing funds can transition to the new CCIV regime without creating unintended tax consequences. The absence of any stamp duty relief from the States and Territories will likely act as a deterrent to existing managers looking to transfer their funds into a CCIV structure. Furthermore, the tax treatment of sub-funds of a CCIV that does not meet the conditions to qualify as an AMIT may pose problems for the CCIV in terms of tax treatment parity with the managed UCITS.
Given these considerations, the suitability of the new CCIV structure for new and existing funds domiciled in Australia would need to be determined on a case-by-case basis.