New Collective Investment Structure

A new pooled investment structure is coming to Australia:[1]  Corporate Collective Investment Vehicle (CCIV).  A CCIV conceptually is akin to a “corporatized trust”.  This is important for anyone currently operating using a managed investment scheme or unit trust structure, particularly involving offshore investors.

The key aim in introducing the CCIV is to increase international competitiveness of Australia’s managed funds industry, i.e. to attract offshore investment.  A CCIV retains many of the advantages of the trust structure, with added regulatory protections and commercial benefits of a corporate structure.

The proposed commencement date for operation of CCIV is 1^st July 2022.  The federal government is currently seeking submissions to its proposed legislation which sets out the regulatory and tax treatments of the new regime.  Anyone considering starting a fund should consider the CCIV as we move into 2022.

The proposed law

The proposed new law updates the Corporations Act, to set out the framework for establishing and operating a CCIV, in a manner that is fair, efficient, and competitive.  The proposed laws operate in conjunction with the existing financial services regulations.

There are also amendments to the ASIC Act, the Personal Property Securities Act (PPSA), and income tax legislation.

The laws set out strong protective mechanisms for retail investors.

What is a CCIV?

The Corporate Collective Investment Vehicle is intended to be a new type of company used for collective investment.  It will operate as an alternative to the current structure in Australia, the trust-based managed investment scheme.  For each CCIV:

• The CCIV company is limited by shares.
• It must have a single corporate director (ie the director must not be a natural person).
• The corporate director must be a public company, with an Australian Financial Services Licence (AFSL) authorizing its relevant functions.
• The CCIV may not have any other officers.
• All CCIVs must register with ASIC. To do so, it must meet certain basic requirements.
• At registration, it must have at least one sub-fund, which has at least one member.
• Within a CCIV, one or more sub-fund may be established; each sub-fund’s registration with ASIC is a ‘standalone’ process.

The CCIV must register as retail or wholesale.  If even one investor is retail, the CCIV must register as retail, and must comply with additional regulatory requirements designed to protect retail investors.

Given the CCIV is a corporate structure, it will generally be subject to the ordinary rules under the Corporations Act, with some particular provisions.   Most of the powers, rights, duties and characteristics of a company will apply.

What are the advantages of a CCIV?

• Global alignment

Similar investment structures exist in the UK, EU and Asia.  By aligning the CCIV with overseas funds management structures, the CCIV is more likely to attract foreign investors, particularly those who are familiar with the model.

Some of the advantages that attach to the CCIV, but not to ordinary companies, are:

• Flow-through tax

Unlike an ordinary company, the CCIV is eligible for flow-through tax treatment (subject to certain criteria).  The intention is to align the tax treatments of a CCIV and a MIS so that the tax outcomes for an investor in a sub-fund of a CCIV are the same as an investor in an attribution managed investment scheme (AMIS).  The existing flow-through tax regime will be used.

If a sub-fund of a CCIV does not meet the eligibility criteria, then for that year its tax treatment will generally default to the general trusts framework.[2]

• Share capital structure

The CCIV must have a share capital.  However the CCIV may have a more flexible share capital structure than ordinary companies.   For example, the company may issue some or all of those shares as redeemable at the members’ option.  Also, unlike a regular company, redemption is not necessarily out of profits, as long as the CCIV remains solvent.

• Retail investor protections

If any investor (at issue or through transfer) is retail, the CCIV must notify ASIC and register as retail.  Retail investors in CCIVs receive significant statutory protections, as a consequence of a much higher regulatory burden on retail CCIVs.  For example, a retail CCIV must submit a compliance plan to ASIC, and its constitution must:

• state that the company has the power to raise or borrow funds;
• set out processes for dealing with complaints;
• set out how sub-funds will be established; the classes of shares referable to each sub-fund; permitted cross-investments between sub-funds.

In contrast, a wholesale CCIV does not have to submit a compliance plan, and its constitution is required only to deal with processes for modifying, repealing and replacing the constitution.

• Duties

Corporate statutory duties apply to the corporate director, as do the general duties at law, such as fiduciary duties.  The director’s duties to the CCIV have priority when there is conflict with its duties to its public company.

Duties are also imposed on the officers and employees of the corporate director.

Additional duties apply to a retail CCIV.

• Sub-fund structure

The sub-fund structure enables a single CCIV to offer multiple products and investment strategies.  In particular, recent modifications to the proposed legislation facilitate appropriate cross-investments between sub-funds within a CCIV, enabling a CCIV to utilize funds management strategies such as hedge or master-feeder structures.

The innate flexibility of the structure means that sophisticated investors may negotiate bespoke contracts.

• Listing

Only a retail CCIV with a single sub-fund may be listed on a prescribed Australian financial market.  (Listing of a retail CCIV with more than one sub-fund will be considered once the regime is operating.)

However, a security in a CCIV can be quoted on a financial market, or settled using a financial market infrastructure (subject to that market’s rules).

How will the CCIV operate alongside existing MIS?

The regulation is designed to promote parity between the regulation of existing MIS (managers and members) and the regulations of a CCIV.   It also enables funds managers to transition MIS members into CCIVs.

The take away message

The CCIV is a new structure for pooled investments, slated to commence on 1^st July 2022.  Its unique structure offers commercial flexibility through its sub-funds and combines many of the advantages of both trusts and companies.  It should also be more attractive to overseas investors, as its structure is more closely aligned to global investment structures.

[1]   Treasury Laws Amendment (Corporate Collective Investment Vehicle) Bill 2021.  Refer to the Treasury website for key documents  at Corporate Collective Investment Vehicles – Regulatory and Tax Frameworks | Treasury.gov.au.

[2] Refer to The Treasury website for further details at Corporate Collective Investment Vehicle – Tax Framework Explanatory Materials (treasury.gov.au).