In a recent decision, the Supreme Court of Victoria has granted orders to facilitate the winding up and deregistration of Spitfire Investments (ARSN 635 234 472) (“Spitfire Investments”), a registered managed investment scheme for which Equity Trustees Limited (“EQT”) acted as the responsible entity.
Background
- Spitfire Investments was established in July 2019, with EQT acting as the responsible entity and Spitfire Operations Pty Ltd (ACN 163 452 300) (“Spitfire Operations”) appointed as the investment manager.
- Spitfire Operations entered voluntary administration in August 2020 and was later placed in liquidation. By November 2020, all scheme assets in Spitfire Investments had been distributed to members.
- EQT decided to wind up Spitfire Investments in December 2020, but due to Spitfire Operations’ external administration and subsequent deregistration on 27 July 2024, Spitfire Operations did not prepare final accounts for Spitfire Investments.
- Because no final accounts were prepared, EQT was unable to arrange for an independent audit of the final accounts of Spitfire Investments which was a requirement for the scheme to wound up in compliance with the audit requirements contained in the constitution for Spitfire Operations, the Corporations Act, ASIC Regulatory Guide 148 and ASIC Class Order 13/762.
- On 30 November 2020, EQT notified ASIC that it was in breach of its statutory obligations and was unable to comply with its audit requirements.
- On 7 December 2020, EQT notified ASIC of the commencement of winding up Spitifire Investments. However, as there was an ongoing breach that had not been rectified, ASIC informed EQT that it could not process the winding-up of Spitfire Investments.
- ASIC informed EQT that to facilitate the deregistration of Spitfire Investments, EQT may wish to apply to the court for orders allowing the winding up of Spitfire Investments under section 601NF of the Corporations Act 2001 (Cth) (“Corporations Act”).
Section 601NF of the Corporations Act
Section 601NF(2) of the Corporations Act provides that the Court may, by order, give directions about how a registered scheme is to be wound up if the Court thinks it necessary to do so (including for the reason that the provisions in the scheme’s constitution are inadequate or impracticable).
An order may be made to the Court on the application of either the responsible entity, a director of the responsible entity, a member of the scheme, or ASIC.
Court Findings
Given the circumstances, EQT applied to the Court under section 601NF(2) of the Corporations Act, seeking relief from the obligation to conduct an independent audit of the final accounts. The Court found:
- There was no identifiable benefit in conducting an independent audit, as all assets had already been distributed to members under the supervision of independent liquidators and Spitfire Investments had not operated since that distribution.
- Compliance with the audit requirements was impracticable, given that no final accounts were prepared and Spitfire Operations was deregistered.
- ASIC did not oppose the application to deregister Spitfire Investments and had advised EQT to seek Court directions in facilitating the winding up of the scheme.
For the reasons provided above, the Court made orders that Spitfire Investments be wound up without EQT having to arrange for an independent audit of the final accounts of the scheme in accordance with the requirements under the scheme constitution or the audit under the Corporations Act, ASIC Regulatory Guide 148 and ASIC Class Order 13/762.
Key Takeaways
This case highlights that the Courts can exercise their powers under the Corporations Act to provide practical relief where strict compliance with a managed investment scheme’s constitution or statutory obligations are infeasible or unreasonable.
Investors’ interests in this case were protected, as all assets had already been fully distributed and the imposition of the audit requirement would have delayed the wind-up process and incurred additional costs with no benefits to investors.
This case shows that flexibility is crucial where procedural obligations arise during the winding up of a managed investment scheme.
If you would like further information on your obligations as a responsible entity or trustee of a managed investment scheme, please get in contact with Brendan Ivers at brendan.ivers@kainlawyers.com.au.