Commonwealth Numbered Regulations - Explanatory Statements

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CORPORATIONS REGULATIONS (AMENDMENT) 1992 NO. 281

EXPLANATORY STATEMENT

STATUTORY RULES 1992 No. 281

Issued by the Authority of the Attorney-General

Corporations Act 1989

Corporations Regulations (Amendment)

Section 22 of the Corporations Act 1989 (the Act) empowers the Governor-General to make regulations, not inconsistent with the Act or the Corporations Law (the Law), prescribing, inter alia, matters which are required by the Law to be prescribed by regulations or necessary or convenient to be prescribed by regulations for carrying out or giving effect to the Law.

In accordance with the Heads of Agreement and the draft Corporations Agreement (the Agreement) between the Commonwealth, State and Territory Ministers having responsibilities in relation to corporate regulation, the Attorney-General has consulted the relevant State and Territory Ministers on the amendments. Under the terms of the Agreement, the Attorney-General is required only to consult Ministers on legislative proposals relating to matters falling within Chapter 7 of the Law. The Regulations are in this category.

The purposes of the Regulations are:

1.       to restrict borrowings by unlisted property trusts to 20 per cent of their gross tangible assets;

2.       the management company of an unlisted property trust will be required to possess a minimum net worth based on the gross funds in property trusts under management ($500,000 plus $10,000 for every $1,000,000 in excess of $50,000,000 up to $500,000,000);

3.       specific minimum liquidity requirements are to be maintained (the three month moving average of the liquid assets of the trust plus a portion of the liquid assets of the management company as a percentage of the total assets of the trust is to be maintained at no less than 15 per cent);

4.       in the event that the minimum liquidity requirement is not maintained, the Australian Securities Commission is to be notified and all offers to take up units in the trust are to be suspended until a meeting of unitholders is convened to consider certain options, including:

-       listing the trust;

-       replacement of the management company; and

-       terminating the trust; and

5.       the scope of Division 5A of Part 7.12 of the Law in relation to property securities trusts is clarified.

Regulation 6, which clarifies the scope of Division 5A of Part 7.12 of the Law, will be taken to have commenced at 4.50 pm Australian Eastern Standard Time on 23 July 1991. That regulation will not prejudice lights existing at the date of notification of any affected person and does not impose liabilities on any such person. The 23 July 1991 commencement date does not, therefore, contravene subsection 48(2) of the Acts Interpretation Act 1901.

The remaining regulations will commence on the date of Gazettal.

Details of the Regulations are at Attachment A.

Regulation 1

Commencement

Subregulation 1.1 provides that Regulation 6 of these Regulations is taken to have commenced at 4.50 pm Australian Eastern Standard Time on 23 July 1991. Regulation 6 merely clarifies the intended scope of Division SA of Part 7.12 of the Law which applied from that date to unlisted property trusts in existence at that time (see paras. 10 to 12 below).

Regulation 2

Amendment

2.       Subregulation 2.1 provides that the Corporations Regulations are amended as set out in these Regulations.

Regulation 3

Regulation 1.02 (Definitions)

3.       Subregulation 3.1 amends regulation 1.02 of the Corporations Regulations to add definitions of the terms 'property trust' and 'unlisted property trust'. Regulation 1.02 sets out various definitions for the purpose of the Corporations Regulations. The definitions inserted are based respectively on the definition of 'property trust' in section 1076A of the Law and paragraph (a) of the definition of 'Division 5A trust' in section 1076A of the Law.

Regulation 4

New regulation 7.3.02A

Background

4.       Management companies am, by virtue of engaging in a business of dealing in the prescribed interests which they offer, required to hold a dealers licence (Division 1 of Part 7.3 of the Law). Such a licence is subject to 'such conditions and restrictions as are prescribed' (paragraph 786(1)(a)). Paragraph 786(2)(c) of the Law makes it clear that such conditions and restrictions may include 'conditions and restrictions relating to the financial position of the holder of a dealers licence, whether in relation to the business of dealing in securities carried on by the holder or otherwise'.

5.       Regulation 7.3.02A imposes conditions relating to the financial position of a management company of an unlisted property trust for the purpose of holding a dealers licence. This regulation requires the management company of an unlisted property trust to have net tangible assets with a specified minimum net worth relative to the value of the assets in unlisted property trusts which it manages.

6. Subregulation 4.1 inserts after regulation 7.3.02 of the Corporations Regulations proposed regulation 7.3.02A. Regulation 7.3.02A prescribes conditions, under paragraph 786(1)(a) of the Law, to the effect that if the holder of the licence is the manager of an unlisted property trust (a 'relevant property trust'), then:

       the licensee must at all times maintain net tangible assets not less than $500,000 plus $10,000 for every $1,000,000 over and above $50,000,000 up to $500,000,000 of the gross assets value of relevant property trusts managed; and

       where the value of gross assets of relevant property trusts managed exceeds $500,000,000, the minimum value of the net tangible assets of the trust manager must be $5,000,000.

7.       For the purposes of regulation 7.3.02A the term 'relevant property trust' is defined to mean any unlisted property trust under an approved deed other than a trust excluded by the Australian Securities Commission ('ASC'). The capacity for the ASC to exempt a particular trust from the definition of 'relevant property trust' will enable it to exclude assets in certain fixed term trusts in respect of which there is no buy-back or redemption obligation from the determination of minimum capital requirements of a management company. The proposed regulation also permits the ASC to, where appropriate, exclude a management company of a relevant property trust from compliance with the minimum capital requirements of this regulation on such terms and conditions as it otherwise imposes. The types of terms and conditions which can be imposed by the ASC are listed at subsection 786(2) of the Law.

Regulation 5

Regulation 7.12.01 (Interpretation)

8.       Subregulation 5.1 omits the definition of 'property trust' from regulation 7.12.01 of the Corporations Regulations. Regulation 7.12.01 sets out various definitions for the purpose of Part 7.12 of the Corporations Regulations. The definition of 'property trust' therein is omitted and replaced by the definition of that term inserted by subregulation 3.1 of these Regulations.

Regulation 6

New Regulation 7.12.12A

Background

9.       Division SA of Part 7.12 of the Law applies to all unlisted property trusts which were in existence on 23 July 199 1, the date of the Government's announcement of measures taken to restore confidence and stability in the unlisted property trust industry (see Attorney-General News Release 3319 1). At that date, the term 'property trust' was defined in regulation 7.12.01 of the Corporations Regulations to mean a scheme established or promoted for the purpose , or that has the effect, of:

(a)       the offering to, or holding by, persons of prescribed interests held, or to be held, as beneficial interests under a trust; and

(b)       the holding under the trust of property 20 per cent or more of which is, or is likely to be, real property.

Regulation 7.12.12A

10. A new definition of 'property trust' was included in Division 5A of Part 7.12 of the Law for the purposes of that Division. Although the wording of that definition is different from the definition in regulation 7.12.01 (which is omitted from the Corporations Regulations by these regulations - see para.8 above), the intended scope and coverage of the definition is the same. The purpose of regulation 7.12.12A, inserted in the Corporations Regulations by Regulation 6 of these Regulations, is to make it clear that a 'property securities trust' which invests primarily in property securities rather than directly in real property is not to be subject to Division 5A of Part 7.12 of the Law. The provisions of Division 5A of Part 7.12 are intended to apply only to those trusts which are generally regarded as unlisted property trusts.

11. A property trust to which Division 5A of Part 7.12 of the Law applies is defined as one in which at least 20 per cent by value of trust property consists of estates in land (other than those derived as a mortgage) or which is promoted or held out as a trust that will acquire such interests. For the purpose of clarifying the scope of Division 5A of Part 7.12 a 'property securities trust' is defined in subregulation 7.12.12A(1) to mean a trust which invests predominantly in property securities and does not hold, or is not promoted or held out as holding, property of which 20 per cent by value is or is likely to be real property. To avoid any unintended application, subregulation (2) specifically provides that Division 5A does not apply to a property securities trust that is a property trust only because 20 per cent or more of trust property consists of estates in land derived from prescribed interests made available under an approved trust deed, or only because such prescribed interests are taken into account in assessing the total value of real property held by the trust. Trusts promoted as such are similarly exempted.

12. Subregulation 7.12.12A(3) makes it clear that the purpose of this regulation is to avoid doubt as to the effect of Division SA of Part 7.12 of the Law.

Regulation 7

Prescribed covenants: paragraph 1069(1)(n) of the Corporations Law

13. Regulation 7 amends regulation 7.12.15 of the Corporations Regulations which prescribes, for the purposes of paragraph 1069(1)(n) of the Law, certain covenants binding on any trustee, representative of holders of prescribed interests, and the management company of a prescribed interest scheme.

ASC investigation powers

14. Subregulation 7.1 omits paragraph (1)(h) of regulation 7.12.15 of the Corporations Regulations. That paragraph confers an investigatory power on the ASC to obtain information and inspect the relevant books of account of a prescribed interest scheme where the ASC has reason to believe that there has been a contravention of a covenant in the trust deed of the scheme. This provision was necessary prior to the enactment of subsection 1073(1A) of the Law, because a contravention of a covenant was not under the Law as it then stood a contravention of the Law. The ASC's general powers of investigation, examination and inspection had no operation in relation to a suspected breach of a covenant which was not a contravention of the Law.

15. Paragraph (1)(h) of regulation 7.12.15 is now unnecessary. The ASC's general powers of investigation, examination and inspection under Divisions 1, 2 and 3 of Part 3 of the Australian Securities Commission Act 1989 will operate in relation to a suspected contravention of a covenant which under subsection 1073(1A) would be also a contravention of the Law.

Valuation of trust property

16. By sub-subparagraph 7.12.15(5)(d)(ii)(C) of the Corporations Regulations, one of the current assumptions upon which trust property is to be valued is that it 'will be' reasonably exposed to the market for property of a similar type. Subregulation 7.2 substitutes 'was' in place of 'will be' in sub-subparagraph 7.12.15(5)(d)(ii)(C). This is a technical amendment which ensures that the notional exposure period is one expiring prior to the date of valuation (rather than say a period sometime in the future involving different market conditions).

17. Subregulation 7.3 adds two further matters to subparagraph 7.12.15(5)(d)(ii) of the Corporations Regulations which are to be taken into account for the purpose of preparing a property valuation, and determining the price at which property might reasonably be expected to be sold at the date of the valuation. Sub-subparagraphs (E) and (F) provide that in determining the price of a property it is to be assumed that sufficient resources are available to the trust to allow a reasonable period for the exposure of the property for sale and that sufficient resources will be available to negotiate an agreement for sale of the property.

18. Subregulation 7.4 amends subregulation 7.12.15(5) of the Corporations Regulations to include additional covenants for the valuation of real property to ensure that the value of trust units more accurately reflect the underlying value of trust assets. Existing paragraph 7.12.15(5)(g) requires, by covenant, the trustee to cause real property of the trust to be valued if the trustee reasonably believes that there has been a significant change in the value of the property. Subparagraphs (g)(i) and (ii) of subregulation 7.12.15(5) require the trustee of a property trust to cause real property to be valued at intervals of not more than 12 months where the management is under a buy-back obligation, and at least once every 3 years in any other case.

19. Paragraph (ga) requires the trustee to arrange for the valuation of trust property where the management company has a reasonable belief that there has been a significant change in the value of the property and so advises the trustee.

20. Where more than a single property is to be valued paragraph (gb) requires the trustee to ensure that the valuation of the properties is arranged in a manner which best promotes the interests of the trust's unitholders.

21. By paragraph (ge) a unitholder will, on written request to the trustee, be able to ascertain the current valuation of a property (subparagraph (gc)(i)), the instructions that the trustee gave to the valuer for the purposes of the valuation (subparagraph (gc)(ii)), and the period of time that the valuer expects would be required to sell the property if it were offered for sale immediately (subparagraph (gc)(iii)).

22. Subregulation 1.5 adds paragraphs (q), (r) and (s) to subregulation 7.12.15(5) of the Corporations Regulations. Paragraphs (q) and (r), in effect, limit borrowings of an unlisted property trust (other than certain fixed term trusts - see para.24 below) to 20 per cent of the value of the trust's gross tangible assets. The restrictions are imposed by covenants which require the trustee to not incur or authorise any borrowing which would exceed the 20 per cent limit and, if at any stage the total liabilities of the trust do exceed 20 per cent, require that the trustee is to have the value of trust liabilities reduced to 20 per cent or less as soon as is reasonably practicable (see paras. 25 and 26 below).

23. Paragraph (s) binds the trustee of an unlisted property trust to ensure that the redemption price for units in the trust, where the trust deed provides for the redemption of units, reflects the value of the trust's assets on the day on which the redemption occurs (see para.29 below).

24. Subregulation 7.6 inserts new subregulations 7.12.15(5A) and 7.12.15(5B) in the Corporations Regulations. Subregulation 7.12.15(5A) has the effect of not requiring the trustee of certain fixed term trusts to comply with the borrowing restrictions imposed by paragraphs (5)(q) and (r) of regulation 7.12.15. The borrowing restrictions do not apply to a fixed term property trust in respect of which there is no buy-back or redemption obligation.

25. Subregulation 7.12.15(5B) provides that where a trust has exceeded the 20 per cent borrowing limitation the trustee will, in taking action to have the trust's liabilities reduced to 20 per cent or less, not do so in a manner which will materially reduce the value of units in the trust unless there is no prospect of the trustee being able, within a reasonable time, to so reduce the trust's liabilities. The purpose of this provision is to ensure that precipitate action to reduce the level of borrowings is avoided but at the same time to ensure that the trustee remains under a continuing obligation to have the trust liabilities reduced where they exceed the 20 per cent borrowing limitation.

Covenants binding on the management company of a property trust

26. Subregulation 7.7 prescribes five additional covenants (paragraphs (e) to (i)) binding the management company of an unlisted property trust. Each covenant is prescribed for the purposes of paragraph 1069(1)(n) of the Law, a contravention of which is a contravention of the Law but not an offence (subsections 1073(1A) and (1B) of the Law).

27. Paragraph (e) requires the management company to seek the approval of the trustee before borrowing funds for the purposes of the trust. This covenant is ancillary to those included by paragraphs (q) and (r) of subregulation 7.12.15(5) which prohibits the trustee from authorising any borrowing which may result in the trust's liabilities exceeding (by value) 20 per cent of the trust's gross tangible assets (see para. 22 above).

28. Paragraph (f) requires the management company to give to a valuer information required for the purposes of the valuation of real property as directed by the trustee. The trustee is already subject to such an obligation under subparagraphs 7.12.15(5)(d)(iii) and (iv) of the Corporations Regulations. This covenant extends that general obligation to the management company and thereby includes information which in the past may possibly have been withheld from a valuer. This will assist in providing the valuer with all the information (including, for example, details of tenants, tenancies and tenancy benefits) reasonably required to make a fair and reasonable valuation of the trust property.

29. Paragraph (g) requires the management company of an unlisted property trust to buy back units in the trust at a price reflecting the value of the trust's assets on the day on which the buy-back occurs. The covenant reflects the requirement in section 1076K of the Law for units subject to the entrenched provisions of a trust deed to be bought back by the management company and/or redeemed by the trustee at a price reflecting the value of trust assets at the date of buy-back or redemption (see para. 23 above).

30. Paragraph (h) requires the management company to comply with the conditions to which its licence is subject (see paras. 4 to 7 above). By binding the management company under covenant to comply with licence conditions, failure to so comply will result in a breach of the Law and expose the management company to, among other things, civil action under section 1005 of the Law. In the absence of such a covenant, a breach of conditions could only result in the revocation of a licence.

31. Paragraph (i) requires the management company to inform the ASC and the trustee of the property trust of any breach of its licence conditions. The effect of paragraph (i) is to, among other things, expose a management company to civil action under section 1005 of the Law where having become aware of the breach it does not inform the ASC and the trustee of the breach.

32. Subregulation 7.8 adds at the end of subregulation 7.12.15(10) of the Corporations Regulations a further paragraph (paragraph (h)) which has the effect of requiring a management company to retire from office where unitholders vote to replace the management company at a meeting convened under either paragraph 7.12.15A(6)(d)) or paragraph 7.12.15A(8)(b), as a result of the trust failing to maintain a combined liquidity level of at least 15 per cent (see paras.33 and 34 below).

Regulation 8

New regulation 7.12.15A

33. Regulation 8 inserts in the Corporations Regulations new regulation 7.12.15A. The new regulation prescribes certain covenants in relation to the liquidity of an unlisted property trust. Essentially, the covenants require that an amount of at least 15 per cent of the net tangible assets of the trust is available for the purpose of meeting the possible withdrawal of funds by unitholders of the trust.

34. As the management company of a property trust is required under the prescribed covenants of the trust deed to make and to maintain at all times adequate buy-back arrangements (paragraph 1069(1)(d) of the Law), the combined liquidity of the trust and the management company is taken into account to determine the liquidity of the trust for the purpose of meeting buy-back/redemption requests by unitholders. The combined liquidity is determined on a formula basis and is relevant only for the purpose of ensuring that an amount equal to at least 15 per cent of the value of trust assets is available to meet the possible withdrawal of funds by unitholders.

35. Subregulation 7.12.15A(1) provides a dictionary of terms used for the purpose of that regulation. The definition of terms used is largely self-explanatory. While the meaning of each term is integral to the operation of the regulation, the central concepts to that operation are the liquidity of the management company, the liquidity of the trust and the combined liquidity of the management company and the trust.

36. 'Liquidity' in relation to the management company refers to the sum of net liquid assets of the manager on the day for which liquidity is calculated, at market value current on that day, being:

(a) cash and bank bills;

(b) cash which may be reasonably realised from assets which are:

(i)       expected to mature within the buy-back period; or

(ii)       reasonably capable of being converted into cash within the buy-back period, other than:

(A)       real property;

(B)       loans or advances to the manager's associates which are not fully secured, and are not moneys on deposit with a banking corporation (as defined in section 9 of the Law) or an authorised money market dealer, and

(c)       unused lines of credit made available to the manager by any banking corporation (as defined in section 9 of the Law) or by any financial institution approved by the ASC for this purpose where the lines of credit can be lawfully used for the purposes of the trust and the management company has reasonable grounds to believe those lines of credit will not be withdrawn,

less all liabilities expected, on the day for which liquidity is calculated, to be due within the buyback period (not including buy-back requests).

37. In relation to the trust, 'liquidity' refers to the sum of net liquid assets of the trust on the day for which liquidity is calculated, at market value current on that day, being:

(a) cash and bank bills;

(b) assets which are:

(i)       expected to mature within the redemption period, including the net proceeds of unconditional sale of real property;

(ii)       reasonably capable of being converted into cash within the redemption period, other than real property; and

(c)       unused lines of credit made available to the trust by any banking corporation (as defined in section 9 of the Law), or by any financial institution approved by the ASC for this purpose, to the extent that they may be used without breaching any borrowing restrictions on the trust,

less all liabilities expected, on the day for which liquidity is calculated, to be due within the redemption period (not including redemption requests but including capital commitments). That amount is to be expressed as a percentage of the net tangible assets of the relevant trust.

38. The 'combined liquidity' of a trust is made-up of the liquidity of the trust, referred to as the 'trust liquidity' (a defined term), and the 'management company's liquidity' (a defined term) multiplied by a fraction whose numerator is the net tangible asset value of the trust and denominator is the aggregate net tangible assets value of all 'relevant property trust(s)' (a defined term) managed by the management company. A 'relevant property trust' is one which over a period of three months ending on a day of the calculation has an average liquidity of less than 15 per cent. Thus in calculating 'combined liquidity', the management company's own liquidity is in effect only apportioned in respect of those trusts which do not satisfy the liquidity requirements in their own right. Further, the ASC now has the power to declare trusts managed by the management company not to be relevant property trusts (see definition of 'relevant property trust' and subregulation 7.12.15A(2)). This enables the ASC to exclude from the calculation of the 'management company's aggregated assets', the assets of certain fixed tern property trusts in respect of which there is no buy-back or redemption obligation.

39. Subegulation 7.12.15A(2) provides that the ASC may notify the management company and the trustee of an unlisted property trust that the liquidity requirements prescribed by regulation 7.12.15A do not apply to that trust.

40. Subegulation 7.12.15A(3) provides that, for the purpose of determining the liquidity of the trust or of a management company, the ASC may approve a financial institution which has extended a line of credit to the trust or management company. Any such line of credit by a financial institution (other than a bank) not approved by the ASC cannot be taken into account in the determination of liquidity.

41. Subegulation 7.12.15A(4) requires the ASC to notify the management company and the trustee of a property trust of financial institutions approved by it for the purpose of the liquidity determination.

42. Subegulation 7.12.15A(5) provides, for the purposes of paragraph 1069(1)(n) of the Law, that the trust deed contain a covenant to the following effect. That:

       the management company strive to maintain a combined level of liquidity in relation to the trust of at least 15 per cent of the trust's average assets value (paragraph (a));

       the management company maintain records in a form which will allow the ASC to calculate the trust's average combined liquidity and the trust's average assets value (paragraph (b));

       the management company will allow the trustee access to records on asset values and the calculation of the combined liquidity of the trust (paragraph (c)); and,

       the management company will, as soon as practicable, inform the trustee of the trust's average combined liquidity where the trustee advises the management company that in the trustee's opinion the combined liquidity of the trust is less than 15 per cent of its average assets value on that day (paragraph (d)).

43. Where the trust's average combined liquidity on a day is less than 15 per cent, subregulation 7.12.15A(6) prescribes a series of covenants binding the management company of an unlisted property trust. The covenants require the management company to:

       immediately, and in writing, inform the trustee and the ASC that the trust's combined liquidity has fallen below 15 per cent (paragraph (a));

       inform the trustee and ASC of any material variation or expected material variation in the trust's combined liquidity (paragraph (h));

       notify the unitholders as soon as practicable of the situation, and provide unitholders with all details and information necessary for unitholders to vote on the proposals to be put to to the meeting of unitholders to be convened by the management company (paragraph (c));

       as soon as practicable after informing the ASC that the combined liquidity of the trust has fallen below 15 per cent, convene a meeting of unitholders to vote on proposals relating to the future of the trust including the possible listing of the trust, replacement of the management company, termination of the trust extension of any period allowing for the buy-back or redemption of units, and any other proposal directed by the ASC or that the management company or the trustee considers relevant (paragraphs (d) and (e));

       ensure that unitholders may use proxies for the purposes of the meeting and that unitholders can vote at the meeting using a preferential system for voting on proposals (paragraph (f));

       allow a suitable manager access on a confidential basis to such of the trust's information as would enable it to make an informed decision whether to make an offer to manage the trust in place of the management company (paragraph (g)) (this covenant is intended to facilitate the possible replacement of the management company where unitholders vote in favour of that proposal. However, to prevent persons simply seeking to acquire detailed information about the trust where there has been a failure to maintain a minimum liquidity of 15 per cent, the availability of such information prior to the unitholder meeting is conditional on the agreement of the trustee);

       take all reasonable steps to withdraw the prospectus (paragraph (h));

       stop offering or issuing invitations to apply for trust units, and stop issuing units in the trust (paragraph (j));

       return application moneys in respect of unissued units to the applicant as soon as practicable (paragraph (k));

       comply with conditions determined by the ASC in any notice given to the management company by the ASC which exempts it from paragraphs (c), (d), (h), (j) or (k) above (paragraph (1)).

44. Subegulation 7.12.15A(7) requires the trustee of an unlisted property trust, where it has formed the opinion that the trust's average combined liquidity on a day is less than 15 percent of its average assets value on that day, to inform the ASC and the management company of its opinion as soon as practicable.

45. Where the trust's average combined liquidity on a day is less than 15 percent, subregulation 7.12.15A(8) prescribes a series of covenants binding the trustee of an unlisted property trust. The covenants require the trustee to:

       notify the unitholders as soon as possible of the liquidity situation and details in relation to the meeting to be convened where the management company fails to do so (paragraph (a));

       convene a meeting of unitholders as soon as practicable if the management company fails to do so and, give unitholders details of the meeting and proposals to be voted on (paragraph (h));

       where the trustee convenes the meeting, ask unitholders to vote on specified proposals including the possible listing of the trust, the replacement of the management company, the termination of the trust, the extension of any period allowing for the buy-back or redemption of units, and any other proposal directed by the ASC or that the trustee considers relevant (paragraph (c));

       ensure unitholders may give voting proxies and vote on proposals by using a preferential system of voting (paragraph (d));

       allow a suitable manager access, on a confidential basis, to such of the trust's information that would assist it make an informed decision whether to make an offer to manage the trust in place of the management company where the trustee believes that such action would be in the best interests of the unitholders and the manager agrees in writing to use the information solely for the purpose of making an informed decision (paragraph (e));

       return application moneys received by the trustee in respect of unissued trust units to an applicant as soon as practicable (paragraph (f));

       comply with conditions determined by the ASC in any notice given to the trustee by the ASC which exempts it from paragraphs (b) or (f) above (paragraph (g)).

46. Subegulation 7.12.15A(9) prescribes, for the purposes of paragraph 1069(1)(n) of the Law, certain covenants requiring the trustee and management company of an unlisted property trust, where the average combined liquidity of the trust falls below 15 per cent, to:

       notwithstanding section 1069A of the Law, strive to implement a proposal receiving more than 50 per cent of first preference votes eligible to be cast at the meeting, or if no proposal receives at least 50 per cent of the first preference votes, that proposal which receives 50 per cent of votes after the distribution of preferences (paragraph (a));

       notwithstanding section 1069A of the Law, strive to have trust units quoted on the stock market of a securities exchange where less than 25 per cent of eligible votes are cast or where more than 25 per cent of eligible votes are cast but no proposal receives more than 50 per cent of the vote (either the primary vote or after distribution of preferences) (paragraph (h)); and

       if it is not practicable, in the opinion of the trustee and the management company, to have trust units quoted on a stock market, terminate the trust as soon as practicable (paragraph (c)).

Regulation 9

New Regulation 7.12.16A and 7.12.16B

Regulation 7.12.16A - Conditions for passing a special variation proposal otherwise than at a special variation meeting

47.       Section 1076T of the Law sets out the requirements for the passage of a special variation proposal to vary provisions entrenched by section 1076K of Division 5A of Part 7.12 of the Law. Subsection 1076T(1) provides that a proposal is passed at a special variation meeting only where subsection 1076T(2) is satisfied (i.e. the holders of 25 per cent of the value of units in the trust vote on the proposal and a minimum of 75 per cent of those votes are in favour of the proposal), or where conditions prescribed by regulation for the passage of a special variation proposal other than at a special variation meeting are satisfied.

48.       Regulation 7.12.16A allows the passage of a special variation proposal to implement a proposal passed at a meeting convened because the 'combined liquidity' of an unlisted property trust has fallen below 15 per cent (paragraph 7.12.16A(a)), or for the quotation of units on a stock market of a securities exchange where no proposal is agreed to at such a meeting (paragraph 7.12.16A(b)).

49. Regulation 7.12.16B permits voting on special variation proposals under subsection 1076T(3) where all unitholders of an unlisted property trust are associates of the management company. Paragraph 1076T(3)(b) does not, otherwise, permit a unitholder being an associate of the management company from voting at a special variation meeting. Where all unitholders in the trust are associates of the management company, this had the unintended consequence of not allowing any unitholder to vote on a special variation proposal. The new regulation, in effect, excludes the operation of paragraph 1076T(3)(b) where all trust units are held by the management company and/or its associates.

Regulation 10

Application

50. In accordance with section 48 of the Acts Interpretation Act 1901, these regulations, in general, take effect from the date of notification in the Gazette. However, certain of the regulations as provided by Regulation 10 of these Regulations, do not apply immediately to an unlisted property trust in existence (referred to as an 'existing property trust) on the date on which the draft regulations were released for public exposure and comment (23 December 1991).

51. Regulation 10.2 provides that conditions requiring the management company of an unlisted property trust to satisfy minimum asset levels do not apply to the management company in relation to an existing property trust until 1 January 1993. This allows that company a period of time in which to satisfy the minimum asset levels if it does not already. Clearly, where a company manages an existing property trust and, following the commencement of these regulations it also manages a trust created after that date, then the minimum asset levels will apply in relation to the latter trust.

52. Regulation 10.3 provides that the covenants prescribed by paragraphs (q) and (r) of subregulation 7.12.15(5), which impose borrowing restrictions on a trust, do not apply to the trustee of an existing trust until 1 January 1994. This allows the trustee of such a trust a period within which to reduce the trust's liabilities to a level not exceeding 20 per cent in relation to the value of trust assets.

53. Regulation 10.4 provides that the covenants prescribed by regulation 7.12.15A, which require that the combined liquidity of the trust and management company in relation to the net tangible asset value of the trust is to be 15 per cent, do not apply in relation to an existing property trust until 1 January 1994.


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