As discussed in the previous Insolvency Update, the Full Court of the Federal Court decision on 20 October 2009 in Brookfield Multiplex Limited v International Funding Partners Pte Ltd [2009] FCAFC 147 held that a litigation funding arrangement constituted a managed investment scheme. This decision by the Court had the potential for significant implications for many class actions which are backed by litigation funding arrangements. In response to the decision, the Australian Securities and Investments Commission (ASIC) announced on 4 November 2009 its intention to grant transitional relief to lawyers and litigation funders involved in legal proceedings structured as funded class actions.
The decision in Brookfield Multiplex Limited v International Funding Partners Pte Ltd [2009] FCAFC 147
Readers will recall that the Court was required to consider whether a specific litigation funding arrangement constituted an unregistered managed investment scheme. By a 2-1 majority, the Full Court overturned the first instance decision, finding that the funding and retainer arrangements should have been registered under section 601ED of the Corporations Act 2001 (Cth) as they constituted a managed investment scheme.
It was held that the solicitors’ retainer for representative proceedings and litigation funding arrangements were within the meaning of a ‘managed investment scheme’ as defined in section 9 of the Corporations Act.
ASIC's response
As a result of the decision, potential delay, uncertainty, expense and disruption to a number of class actions currently being litigated may occur.
ASIC therefore intends to grant transitional relief, which will apply until 30 June 2010, from the requirements for funded class actions as ‘managed investment schemes’ that would ordinarily apply under Chapter 5C and 7 of the Corporations Act. These requirements include:
Transitional relief for class actions commenced before 4 November 2009 will generally be granted to lawyers and litigation funders on individual application to ASIC. Class actions commenced after this date will be considered separately by ASIC in assessing whether or not and on what terms transitional relief will be granted. Applications are to be prepared in accordance with ASIC Regulatory Guide 51: Applications for Relief and lodged through applications@asic.gov.au.
The transitional relief is intended to allow time for the Government and ASIC to consider how funded class actions should be regulated under the Corporations Act in the future. According to ASIC, depending on this outcome, existing class actions may need to be restructured to meet the requirements of the Corporations Act by the end of the relief period.
For further information please contact Alison Robertson on 9288 6872 or alison.robertson@lavanlegal.com.au or Rebecca Bradshaw on 9288 6742 or rebecca.bradshaw@lavanlegal.com.au.
