For syndicators, professional trustees and fundraisers alike, marketing a trust structure abroad is often met with a reluctance from offshore investors because they are often not familiar with trust structures.
The implementation of the Corporate Collective Investment Vehicle structure is the Australian Government’s strategy for addressing trust scepticism in foreign investors.
This vehicle is a new form of company that utilises a share structure – a structure that is familiar to offshore investors
With effect from 1 July 2022, the Australian Government amended the Corporations Act 2001 (Cth) (Corporations Act) by the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 (Cth) (CCIV Act).
The CCIV Act, among other things, created Chapter 8B of the Corporations Act, which introduced the concept of Corporate Collective Investment Vehicles (CCIV).
The CCIV structure combines concepts of trusts and bodies corporate and bears close similarity to the widely used and trust-based ‘managed investment scheme’ (MIS).
The structure starts with a public company, ordinarily incorporated in accordance with the current company provisions of the Corporations Act (Corporate Director).
A Corporate Director must hold an Australian Financial Services Licence (AFSL). The Corporate Director’s AFSL must permit the company to operate CCIVs (and engage in the activities that are planned for the CCIV and its sub-funds).
Once the Corporate Director has been established and appropriately licenced, it may then apply to ASIC for the incorporation of a CCIV. On registration, a CCIV will be given an ACN and will have the words ‘Corporate Collective Investment Vehicle’ or ‘CCIV’ at the end of its name.
The Corporate Director is the only director of the CCIV. No natural person can be a director, alternate director or company secretary of the CCIV.
A CCIV will not be registered unless it has one or more sub-funds registered at the same time. Although at least one sub-fund needs to be created at the time the CCIV is registered, the Corporate Director may apply for more sub-funds to be created at a later date.
On creation of a sub-fund, it will receive an ‘Australian Registered Fund Number’ (ARFN), which it must use on all public documents and registrable instruments relating to the sub-fund.
Each separate sub-fund will normally relate to a separate investment or investment kind and any shares in the CCIV must be referrable to a specific sub-fund. No investor will have shares referrable only to the CCIV.
As a company, all CCIVs must be registered with ASIC to come into existence. The same goes for any sub-funds under a CCIV.
Unlike other ordinary companies, a copy of the CCIV’s proposed constitution must be submitted to ASIC at the time it applies for registration. Additionally, a CCIV cannot rely on the replaceable rules set out by the Corporations Act.
Like a trust deed, the CCIV’s constitution will set out the rights and responsibilities of, and relationships between, the Corporate Director, the CCIV and the CCIV’s members.
Similar to trust-based MISs, a Corporate Director, on establishing a CCIV needs to consider whether the CCIV will be a retail or a wholesale CCIV.
If the entity will be a wholesale CCIV, it can enjoy greater freedoms, fewer disclosure obligations and a lower level of oversight from ASIC. A wholesale CCIV’s constitution is not required to contain specific provisions or frameworks under the CCIV Act.
As with MISs, this is the trade-off for accepting investments only from wholesale investors.
The constitution of a retail CCIV must set out mandatory items in accordance with the CCIV Act.
A retail CCIV will also be required to provide to ASIC a compliance plan (detailing the procedures in place for the Corporate Director to ensure compliance with the Corporations Act and the constitution of the CCIV) signed by each director of the Corporate Director on registration (or within 14 days of becoming a retail CCIV).
The board of directors of the Corporate Director of a CCIV must comprise no less than 50% ‘external directors’.
For the purposes of this assessment, an ‘external director’ is a director who:
The external director exclusions apply to any related bodies corporate of the Corporate Director.
As the CCIV itself is the operator of the sub-funds but ultimately controlled by the Corporate Director, it is essentially a vehicle for the Corporate Director to control sub-funds. For this reason, it will be uncommon for the CCIV to enter into contracts in its own right.
Rather, the ordinary contract will be entered into by the Corporate Director in its capacity as Corporate Director of a CCIV in reference to a particular sub-fund.
Under the CCIV Act, the CCIV may execute a document under section 127 of the Corporations Act. This can be done by 2 directors or a director and company secretary of the Corporate Director.
Similar to a trust, a sub-fund cannot execute a document in its own right.
The Federal Government is working on a concept of “passport funds” which allows funds to be marketed in foreign jurisdictions. These passport funds will only come into effect once appropriate arrangements have been made between the governments of Australia and those of the relevant foreign countries.
Currently, the focus is on the Asia region. To date, Australia, New Zealand, Japan and Korea have signed the memorandum of cooperation for this passport initiative. Significantly, Singapore has not yet signed this memorandum. Considerable offshore investment in Australia is sourced from Singapore.
As the signatories to the passport fund memorandum of cooperation increase, the advantage of CCIVs as passport funds will continue to grow.
On an international scale, the trust-based MIS system can be considered as confusing and an unfamiliar structure for prospective investors.
A major aim of the Government in creating the CCIV regime is to provide a more structured and better regulated entity that Australian business can use to attract international investment.
As CCIVs are, at their core, a body corporate similar to any other Australian company, issuers can market a familiar entity that has a clear, statutorily imposed structure and compliance regime.
Issuers that would ordinarily implement master/sub trust structures can also expect a more streamlined regulatory process. Where an operator would traditionally need to incorporate various corporate trustee entities and comply with the regulatory burden that process entails, it need only incorporate the Corporate Director and CCIV under this regime and register further sub-funds as necessary.
As the concept is only new, it will take some time to truly weed out all the issues with CCIVs.
On the face of the CCIV Act, it is clear that the ‘external director’ requirements for retail CCIVs may prove challenging for issuers. It is not uncommon in MIS structures for an issuer to have no ‘external directors’.
Unlike a trust structure, a CCIV will only ever come into existence once it is registered with ASIC. Where a trust can be settled as soon as the trust deed is created (and only be required to register in certain circumstances) a CCIV will only come into existence once the application form has been submitted by the Corporate Director by post enclosing the constitution (and the compliance plan in the case of retail CCIVs) and ASIC has accepted that application.
Although ASIC has indicated that it will generally confirm registration within 2 business days of receipt of an application, the requirement to deliver applications by post will undeniably cause a delay in establishment that can prove challenging in time-sensitive transactions.
CCIVs are a new and appealing for fundraising entities, particularly those looking internationally to procure investors.
We expect it may be some time before syndicators that tap the onshore market for investors will adopt this new vehicle.
Where trust-based MIS structures present undeniable advantages domestically, the hesitancy from international investors poses a threat to even the most robust investment proposals. This is the greatest opportunity for issuers to implement a CCIV structure.
Despite its challenges, the marketability of a familiar investment entity type for international investors is undeniable, particularly for established and growing syndicators.
Though the regime is only new, issuers are able to establish vehicles now that can easily pivot to meet changing demands of the entity and its investors.
Jack Hely, a lawyer in the Lavan Property & Leasing Team, provided valuable assistance in the preparation of this publication.
