Investors will be able to withdraw up to $100,000 of their investments from a frozen managed fund under new relief measures introduced by the Australian Securities and Investments Commission (ASIC) to ease financial hardship caused by the COVID-19 pandemic.
ASIC stated the relief measures were being introduced through a legislative instrument that would apply to all responsible entities (RE) of registered managed investment schemes that have become ‘frozen funds’ in order to prevent them being destabilised by a large number of withdrawals.
The corporate regulator stated fund members who wished to make a withdrawal from a frozen fund had to meet at least one of the hardship criteria, which included severe financial hardship, a period of unemployment longer than three months, compassionate grounds or permanent incapacity.
The RE of each fund would hold the discretion to allow a hardship withdrawal where it was satisfied the member had met the hardship criteria, and members would then be able to make four withdrawals per calendar year up to a total of $100,000 of their investment in the fund.
ASIC highlighted hardship relief under the instrument would be available to all REs of frozen funds in the event the RE of a fund had stopped allowing new interests in the scheme, including distribution reinvestments and issues to existing members.
REs seeking to rely on the instrument will also be required to notify ASIC and scheme members of that intention and ensure the scheme has sufficient cash to fulfil future hardship withdrawal requests and continue its daily operations over the following six months.
REs that cannot meet these requirements may seek individual relief from ASIC, but the regulator has warned any release of funds outside the hardship criteria will be a breach of the Corporations Act, and REs will be expected to comply with their legal obligations, the scheme constitution and the terms of relief.
ASIC has previously granted hardship relief following the global financial crisis when a number of investment schemes were frozen and the current relief measures are based on a review and update of the relief and guidance issued at that time.
The regulator noted that previously that relief was granted to funds on a case-by-case basis and the current measures would ease the statutory restrictions on REs and improve access to members during the COVID-19 period.
ASIC deputy chair Karen Chester said the freezing of funds during a time of extreme market volatility was undertaken to protect the interests of all members of a scheme and did not reflect on the underlying value of the fund or the ability of investors to receive their money.
“ASIC recognises that it may be the right thing for responsible entities to freeze their funds in such circumstances and in doing so protect the interests of all members. But this can be especially problematic for some individual members experiencing financial hardship,” Chester said.
“The hardship relief will make it easier for responsible entities of frozen funds to enable withdrawals by investors suffering hardship. However, in doing so, responsible entities will still have to act in the best interests of members. We encourage responsible entities to consider whether the relief is appropriate for their particular fund.”
