AUSTRALIA Law and Practice Contributed by: Andrew Stone, Dhanushka Jayawardena, Andrew Choi and Chris Kinsella, Holding Redlich
2.5 Loan Origination Funds are permitted to originate loans, except for funds structured as a VCLP or as an ESVCLP. The trustee and investment manager of a fund originating loans made to consumers may need to hold an Aus - tralian Credit Licence. Trustees offering fund interests under the terms of a product disclosure statement should refer to ASIC’s Regulatory Guide 45 Mortgage schemes: Improving disclosure for retail investors (“RG 45”). 2.6 Non-Traditional Assets Funds can invest in non-traditional assets such as digital assets, consumer credit and other loan portfo - lios, cannabis and cannabis-related investments, and litigation funding – provided that: • funds structured as unregistered managed invest - ment schemes that are MITs do not control a trad - ing business; and • funds structured as VCLPs or ESVCLPs cannot engage in lending. Cannabis Investing in cannabis-related businesses is permis - sible, provided those businesses are appropriately licensed and cultivate, produce and distribute canna - bis for medicinal and research purposes only. Invest - ments in non-compliant businesses could risk the fund breaching proceeds of crime legislation or risk the operator breaching applicable fiduciary and regu - latory obligations. Careful due diligence and monitoring of cannabis- related investments are essential to funds investing in the sector. Litigation Funding Litigation funding is typically conducted through a pooled vehicle. Investors contribute capital to that vehicle, which is then deployed under contracts with or on behalf of claimants. These contracts entitle the vehicle to a share of relevant proceeds from the litiga - tion (if any). Investors then receive distributions from the vehicle. If the vehicle is a managed investment scheme, it must comply with applicable statutory obli - gations.
In December 2022, the Australian government announced the commencement of new litigation fund - ing regulations, the Corporations Amendment (Litiga - tion Funding) Regulations 2022 (Cth). These regula - tions clarify that relevant litigation funding schemes are exempt from the managed investment scheme, AFSL, product disclosure and anti-hawking provisions of the Corporations Act. In December 2022, ASIC also provided regulatory relief applicable to litigation funding arrangements and proof of debt arrangements and to litigation funding arrangements where the members wholly or substan - tially fund their legal costs under a conditional costs agreement. The relief expires on 31 January 2026, unless extended by ASIC. 2.7 Use of Subsidiaries for Investment Purposes Subsidiary funds can be used to segregate pools of assets held by the parent fund. The trustee of a parent fund may issue classes of units in the parent fund to investors – the economic features of which are refer - able to the performance of the applicable subsidiary fund. This approach is intended to ring-fence the rights and obligations of the subsidiary fund from those of other subsidiary funds and to provide an economic exposure to the subsidiary fund by the unit holder of the relevant class in the parent fund. Where subsidiaries are used, the subsidiary itself should maintain the same tax profile of the holding entity to prevent an erosion of any tax advantages available at the holding-entity level. 2.8 Local/Presence Requirements for Funds There is no requirement to have an Australian-dom - iciled investment manager to manage an Australi - an-domiciled fund, provided the manager satisfies applicable Australian financial services licensing obli - gations. This may require the manager to obtain regu - latory relief from ASIC. Professional Australian trustee companies may be engaged to act as trustee of an unregistered man - aged investment scheme or as responsible entity of a registered managed investment scheme.
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