Australia’s new Corporate Collective Investment Vehicle (CCIV) framework

For years, wholesale fund managers have spent time explaining the trust and managed investment scheme (MIS) structures to foreign investors from either civil law jurisdictions or countries where trusts are not widely used. Following the Johnson Report which recommended policy changes to improve the performance of Australia’s financial sector internationally, the Federal Government has introduced draft legislation which proposes a new corporate collective investment vehicle (CCIV) scheme which is similar to investment vehicles currently used overseas (such as the UK’s open-ended investment company or OEIC) and better understood by foreign investors.

What is a CCIV?

The key features of a CCIV are outlined below.

The CCIV will be a company limited by shares with its own legal identity and regulated by the Corporations Act. It will be operated by a sole corporate director that is a public company which holds an Australian financial services (AFS) license authorising it to operate a CCIV. The corporate director of a CCIV will play a similar role to that of a responsible entity in a MIS.
A CCIV will be incorporated as retail or wholesale and both must be registered with ASIC. A CCIV that acts for one or more retail clients will be subject to a more comprehensive regulatory framework than a wholesale CCIV. In particular, a retail CCIV must have an Australian public company depositary with an AFS licence authorising it to act as a depositary, where it holds assets on trust for the CCIV.
All assets and liabilities of a CCIV must be allocated to one or more sub-funds of the CCIV, each of which will need to be registered with ASIC. The operation of each sub-fund is strictly segregated from the operation of any of the other sub-funds. From an insolvency perspective, this means that the assets of one sub-fund will not be able to be applied to meet the liabilities of another sub-fund.
The government has proposed that the Income Tax Assessment Act be amended to align the tax treatment of CCIVs with that of MISs. This would mean that CCIVs are limited to passive investment activities (such as investments in property, shares or bonds).

Objectives of the CCIV regime

Issues raised with the traditional trust and MIS structure as compared to other international investment vehicles include the fact that these structures are not separate legal entities, are not governed by a standard insolvency regime and are regulated by both corporations and trust laws. This gives rise to difficulties in explaining this regime to foreign investors who are accustomed to corporate-based rather than trust-based investment structures.

The new legislation aims to provide a simpler regulatory regime and a structure that overseas investors are more comfortable with, a coherent solvency regime, and tax neutrality for investors. It will also aim to facilitate migration from the MIS regime to the CCIV regime, where possible.

Implementation

It is currently uncertain when the CCIV legislation will be implemented. The initial exposure draft legislation was released in August 2017, with a first draft of the revised bill released for further public consultation in two tranches in June and July of this year. Submissions closed in mid-August and many highlighted areas on which further clarity is required including governance, responsibility and accountability of the corporate director as well as how MISs will migrate to the new structure.

While the overall aim may be to provide a simpler and more easily understood collective investment vehicle, the legislative changes required to establish this, and the additional guidance being developed by ASIC to assist with regulation of the new CCIV are relatively complex. It may still be some time before the new vehicle gets onto the road.

We will continue to keep our clients updated of developments to the proposed CCIV framework.

For further information please contact Anand Sundaraj or Jon Swain.