Redundancy Funds are funds established for the purpose of funding redundancies and other employee entitlements for employees in an industry including union members. These funds are a managed investment scheme, which are operated by a corporate trustee and governed by a trust deed. These types of funds may be classed together and called a Worker Entitlement Fund.
According to the Final Report of the Royal Commission into Trade Union Governance and Corruption on 28 December 2015, the Commission identified that collectively, approximately six worker entitlement funds in the construction industry hold around $2 billion in assets under management.
What is a managed investment scheme?
It is commonly accepted that a managed investment scheme is a scheme with three predominant features:
- Consideration is provided to acquire interests or rights regardless of whether the rights are actual, prospective, contingent or whether they are enforceable or not;
- The consideration is pooled or used in a common enterprise to produce benefits for the people that have interests in the scheme (Members); and
- The Members do not have day-to-day control over the operation of the scheme.
When does a managed investment scheme need to be registered?
A managed investment scheme is required to be registered if:
- It has more than 20 Members; or
- It is promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or
- There is a determination by ASIC in force in relation to the scheme that a number of managed investment schemes are closely related and that each of them has to be registered at any time when the total number of members of all of the scheme exceeds 20 and the total number of members of all of the schemes to which the determination relates exceeds 20.
However, a managed investment scheme is not required to be registered if all the issues of interests in the scheme do not require the giving of a Product Disclosure Document.
How are these funds regulated?
An employee redundancy fund or worker entitlement fund would ordinarily be required to be registered under section 601ED of the Corporations Act 2001 (Cth) (Corporations Act). However ASIC has issued interim relief to exempt worker entitlement funds and employee redundancy funds from licensing and managed investment scheme related provisions in Corporations Act since 25 May 2000 pending the Government’s consideration and full policy review of the regulation of worker entitlement or employee redundancy funds.
Following a consultation process, ASIC considered it appropriate to preserve the effect of the interim relief and created a new legislative instrument, ASIC Corporations (Employee Redundancy Funds Relief) Instrument 2015/1150 to provide relevant relief until 1 October 2018 (ASIC Instrument).
What does this mean?
Until 1 October 2018, there is very little specific legislation regulating the activities of worker entitlement funds. Given the quantum of money in worker entitlement funds, with in excess of $2 billion in worker entitlements in the construction industry alone, combined with the number of employees this impacts, it is questionable why ASIC has provided relief and whether this relief will extend post 1 October 2018. Depending on what the Government decides as appropriate regulation for these funds, the corporate trustees and worker entitlement funds may have to prepare to be governed by the licensing and managed investment scheme related provisions in the Corporations Act commencing on expiry of the ASIC Instrument.
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