ASIC Corporations (Externally-Administered Bodies) Instrument 2025/584

The instrument introduces several defined terms and triggers. The central concept is the scheme insolvency resolution (for registered schemes) and the notified foreign passport fund insolvency resolution (for foreign passport funds). Both are defined identically in substance: a resolution to the effect that for a period of at least 12 months, the entity's assets or property have been insufficient to meet debts incurred in the relevant capacity as and when they fell due. This is a backward looking test: it asks whether an insolvency condition has existed continuously for a year. It does not require a formal winding up order or appointment of a liquidator. The resolution itself is not defined further; it could be a resolution of the responsible entity's board, of members, or of some other body. The instrument does not specify who passes the resolution, only that it must be lodged with ASIC.

The responsible entity is the existing concept under Chapter 5C: the entity that operates the registered scheme. The responsible person is a person appointed under existing section 601NF(1) to take responsibility for ensuring the scheme is wound up in accordance with its constitution. The instrument extends reporting obligations to both, but only when a scheme insolvency resolution has been lodged.

The relevant period is defined differently for interim reports versus completion reports. For interim reports during the winding up, the relevant period is each period of 12 months. For a completion report where the winding up took less than 12 months, the relevant period is the entire winding up from start to finish. For a completion report where the winding up took longer than 12 months, the relevant period runs from the day after the end of the preceding relevant period until completion. This definition ensures there is a final report covering the final partial period if the winding up spans more than one reporting year.

The prejudicial disclosure exemption is a notable concept. The report must include progress, financial, and value information "unless disclosure of that information would be prejudicial to the winding up." This is a vague standard. It might protect commercially sensitive negotiations or asset sale strategies, but it also creates uncertainty: who decides what is prejudicial? The responsible entity or operator makes that call, but members could challenge it. The instrument does not specify any authority to which disputes about exclusion can be referred. ASIC might have an oversight role through its general powers, but the instrument does not require the reporting entity to notify ASIC that information has been withheld.

The requirement to have adequate arrangements in place to answer reasonable questions is another loosely defined concept. What constitutes "adequate arrangements" and what counts as "reasonable questions" is left entirely to the person complying. This creates compliance risk: if a member considers the arrangements inadequate or the responses untimely, they could complain to ASIC or seek court orders. There is no safe harbour for honest attempts.

The primary duty bearers are: (1) the responsible entity of a registered scheme that is being wound up, but only if a scheme insolvency resolution has been lodged with ASIC; and (2) the responsible person appointed under s 601NF(1) to take responsibility for winding up such a scheme; and (3) the operator of a notified foreign passport fund being wound up, but only if a notified foreign passport fund insolvency resolution has been lodged with ASIC. These entities must prepare reports, make them available, and answer member questions.

The affected beneficiaries are the members of the registered scheme or fund. They gain a right to receive periodic reports and to ask questions about the winding up without charge. However, the instrument does not give members a right to compel specific information if the entity claims it would be prejudicial, nor does it give members a right to demand changes to the winding up process. The right is limited to information that the entity chooses to include or that it answers in response to questions that it deems "reasonable".

No government agency bears any direct compliance burden. ASIC is the lodgement recipient for the insolvency resolution, but the instrument does not impose duties on ASIC to review reports, answer queries, or enforce the obligations. ASIC retains its existing general enforcement powers under the Corporations Act, but the instrument itself creates no new ASIC obligations.

Outside directors or officers of responsible entities will bear the practical burden of ensuring reports are prepared and made available. Where a responsible person has been appointed (often an external administrator), that person will have to allocate time and resources to reporting duties, potentially diverting attention from asset realisation or distribution.

The instrument indirectly affects creditors of the scheme or fund. Better informed members may exert pressure on the winding up process, potentially delaying or complicating asset sales. Conversely, creditors may benefit if member oversight reduces mismanagement or preference payments, though the instrument does not address creditor rights directly.

The sunset clause means that all persons currently subject to these obligations have a fixed horizon: the instrument lapses on 1 October 2030. If the government does not renew or expand the measure, the obligations will disappear for future windings up after that date. This creates a temporary compliance cost that must be weighed against any transparency gains.

The core duty is to prepare a report for each relevant period during the winding up and on its completion, containing: (a) progress and status information including actions taken, actions required to complete, proposed actions in the next 12 months, and expected completion time; (b) financial information on receipts and payments; and (c) the value of scheme property or fund assets and any potential return to members. This report must be made available to members within three months after the end of the relevant period. The duty only applies where a copy of the relevant insolvency resolution has been lodged with ASIC. The reporting entity has a right to exclude information that would be prejudicial to the winding up, but the instrument does not define prejudice or require approval for exclusion.

The second duty is to have adequate arrangements in place to answer, within a reasonable period and without charge, any reasonable questions from members about the winding up. This duty is ongoing from the time the insolvency resolution is lodged until the winding up is complete. The entity must maintain these arrangements proactively; it is not a duty that arises only when a question is asked. What constitutes "adequate" is not defined, but would likely be assessed by reference to the size and complexity of the winding up, the number of members, and the resources available.

Members have a corresponding right to receive the reports within the statutory timeframe and to have their reasonable questions answered without charge. However, the right to ask questions is not a right to demand any particular form of response. The entity can decide that a question is not reasonable and refuse to answer. Members also have no explicit right to request further reports beyond those specified, or to compel disclosure of information excluded as prejudicial.

There is no duty to file reports with ASIC or any other regulator. The duty is only to make the report available to members. This is a notable gap: no public record of the reports exists unless ASIC requests them under its own information gathering powers. This reduces the deterrent effect of transparency, because prospective investors in other schemes cannot learn from the reports unless members choose to publicise them.

The responsible entity or responsible person must exercise the prepation duty themselves; they cannot delegate the duty to a third party, though they may engage professional assistance. The instrument does not specify the form of the report (e.g., whether it must be written, electronic, or in a particular format). Practical compliance likely means written reports, given the information required and the need to make them available to members.

The instrument itself does not prescribe penalties. It inserts sections into the Corporations Act, and a contravention of a provision of that Act is generally a civil penalty provision or an offence, depending on how the relevant Part is structured. Section 601NFA would be in Chapter 5C, which contains civil penalty provisions for failures by responsible entities to comply with their duties. Section 1213MA would be in Chapter 8A, which also contains civil penalty provisions. The specific penalty for a breach of these new reporting obligations is not stated in the instrument, but would be found in the general penalty provisions of the Corporations Act, such as section 1317E (declarations of contravention) and section 1317G (pecuniary penalties). For a corporation, the maximum penalty is likely the greater of a specified amount or three times the benefit obtained, but the exact figure depends on the date of contravention and any subsequent amendments to penalty units. A court could also order disqualification of officers or compensation to members who suffer loss as a result of non-compliance.

Enforcement is in the hands of ASIC, which has discretion to investigate and take action. The instrument does not create a private right of action for members to sue for damages directly due to a failure to report or answer questions. Members could seek injunctive relief or orders for compliance under the general law or under the Corporations Act's civil penalty regime, but that is costly and requires proving a contravention. The absence of a private right of action weakens the incentive for entities to comply, because the only serious enforcement risk is an ASIC investigation, which is contingent on finite regulatory resources.

The instrument also creates no obligation to report non-compliance to ASIC or members. If a responsible entity fails to prepare a report within three months, members might not know they are entitled to one unless they are aware of the legal obligation. This information asymmetry undermines the protective purpose of the provision.

Given the sunset clause in section 20, enforcement interest may be lower closer to the repeal date, as the obligations are temporary. A responsible entity that delays reporting may gamble that ASIC will not pursue a breach if the provision is about to expire. However, the contravention would have occurred while the provision was in force, so ASIC could still pursue penalties after 1 October 2030, subject to limitation periods.

The new sections sit alongside the existing winding up framework in Chapter 5C and Chapter 8A of the Corporations Act. Section 601NF (existing) deals with the responsible entity's duty to wind up the scheme and allows for appointment of a responsible person. The new section 601NFA adds a transparency layer but does not amend the substantive winding up duties. The scheme's constitution continues to govern the winding up process, and the reporting obligations do not override any constitutional provisions, unless they are inconsistent in which case the Act prevails.

The instrument interacts with the general insolvency regime in the Corporations Act, particularly Parts 5.6 (winding up generally) and 5.7B (recovery of property). If a liquidator is appointed externally, the liquidator's reporting duties under Part 5.6 (e.g., reports to ASIC about misconduct) are separate from the new member reporting duties. A responsible entity that is also a trustee in bankruptcy or subject to external administration would have dual reporting obligations, increasing compliance costs.

The instrument may interact with the ASIC Act and ASIC's regulatory guides. ASIC may issue a regulatory guide interpreting "prejudicial to the winding up" or "adequate arrangements", but as of the date of this instrument, none is in force. Practitioners must rely on general principles of administrative law and case law on prejudice and reasonableness.

For notified foreign passport funds, the instrument interacts with Chapter 8A generally, which governs cross-border recognition and regulation of foreign funds. The new section 1213MA mirrors 601NFA but applies only to notified foreign passport funds, which are funds from countries that have a mutual recognition arrangement with Australia. The instrument does not replicate any equivalent reporting obligation for non-notified foreign funds that are simply wound up under their home country laws.

The instrument does not override privacy laws or the requirement to keep member information confidential. Entities must balance the duty to disclose information to members against any legal restrictions on disclosure, such as the Privacy Act 1988. The prejudicial disclosure exception may also cover situations where disclosure would breach confidentiality agreements with creditors or counterparties.

The sunset provision (repeal at 1 October 2030) means the interaction with other laws is temporary. From that date, the new sections disappear, and the law reverts to the pre-existing position. Any ongoing winding up that started before the repeal but continues after it would need careful analysis: the duty to prepare a report for a relevant period ending after 1 October 2030 may cease to apply, but reports for periods ending before repeal would still be required. The instrument does not provide transitional provisions for windings up in progress at the repeal date.

The instrument itself is the sole legislative act inserting sections 601NFA and 1213MA. It does not amend those sections; it creates them as new provisions. There is no amendment history for the inserted sections because they are new. The instrument may have been preceded by consultation papers or draft regulations, but those are not part of the instrument and are not binding. Any later amendments to the instrument before its repeal would be separate legislative acts. The instrument's lifespan is fixed: it is repealed at the start of 1 October 2030, meaning it will have been in force for a set period, likely from its commencement date (not stated in the extract but presumably upon registration or a specified date). Practitioners should check the commencement details in the original instrument to know when the obligations first took effect.

The instrument does not amend any other sections of the Corporations Act besides inserting the new sections. It does not repeal or modify existing reporting obligations under other provisions, such as the requirement for responsible entities to provide annual reports to members under section 601HC or to lodge financial reports with ASIC. The new obligations are additional.

There is no provision for review or consultation within the instrument itself. The sunset date may reflect an intention that the measure is experimental and will be evaluated before 2030. Any decision to extend, amend, or make permanent would require new legislation.

No known litigation has arisen from this instrument at the time of its enactment, as it is a new provision with no judicial consideration. The instrument is a legislative rule, not a court decision. However, the analogous provisions in other jurisdictions (e.g., reporting obligations during corporate wind ups) have generated case law on the meaning of "prejudicial to the winding up" in other contexts. Under the Corporations Act, courts have considered similar language in section 533 (liquidator's report on insolvent trading) but the exact phrase "prejudicial to the winding up" does not appear frequently. Courts may interpret it narrowly, requiring a real risk of harm to the winding up process, not mere inconvenience or commercial sensitivity.

The concept of "reasonable questions" has been interpreted in other statutory contexts (e.g., under the Freedom of Information Act) as requiring a genuine and relevant inquiry, not a fishing expedition. A member's question about the remuneration of the responsible entity or proposed distributions to creditors that are not members might be considered unreasonable if outside the scope of the winding up of the scheme.

If a responsible entity withholds information as prejudicial and a member challenges that decision, the court would likely apply an objective test: would a reasonable person in the position of the winding up officer consider disclosure prejudicial? The member would bear the onus of showing the claim is unreasonable.

Given the instrument's recent introduction, litigation is unlikely until a dispute arises. The reporting obligations are likely to be complied with by most entities, but if an entity fails to report or answers questions inadequately, a member may seek a court order for compliance, which could clarify the scope of the duties.

Several traps await unwary responsible entities and operators. First, the trigger is not a formal winding up. The obligation arises when an insolvency resolution is lodged with ASIC, not when winding up commences. A scheme might be being wound up informally or under its constitution without any insolvency resolution, and the reporting duties would not apply. Conversely, if a resolution is lodged but winding up has not yet begun, the section may still apply because it applies to a scheme "being wound up." The phrase "being wound up" is not defined; it may include the period after the decision to wind up but before actual steps are taken. This ambiguity creates risk: if a responsible entity lodges a resolution early, it may trigger obligations even if winding up is delayed.

Second, the prejudicial disclosure exception is a double-edged sword. An entity that withholds information may face a challenge from members or ASIC that it has breached the duty to report. Without any requirement to notify ASIC or members that information has been withheld, an entity that withholds everything might avoid scrutiny for years, but risks penalty if later found to have improperly excluded information. The safest approach is to disclose as much as possible and document the reasoning for any exclusions.

Third, the three month deadline for making reports available is short, especially for completion reports where the winding up has taken less than 12 months. The report must be prepared and available within three months of the end of the relevant period. If the winding up completes on, say, 15 March, the report must be available by 15 June. If the entity fails to complete the report in time, it contravenes the provision even if the report is substantially complete.

Fourth, the adequate arrangements obligation is ongoing. Even if no member asks questions, the entity must still have arrangements in place. If a member later asks a question and the entity has no system for answering, it contravenes regardless of whether the question was promptly answered. The entity should document the arrangements (e.g., a dedicated email address, a staff member assigned to answer queries, an FAQ page) to demonstrate compliance.

Fifth, the operation of the definition of relevant period for a completion report when winding up takes more than 12 months. Suppose the winding up commences on 1 January 2025 and completes on 30 June 2026. The first relevant period for an interim report is 12 months (1 Jan 2025 to 31 Dec 2025). The completion report's relevant period is from 1 Jan 2026 to 30 June 2026 (the day after the end of the preceding relevant period to completion). That means the entity must produce two reports: an interim report by 31 March 2026 and a completion report by 30 September 2026. Missing the interim report deadline is a contravention even if the completion report is timely.

Sixth, the absence of any member right to request a report. The entity must make the report available within three months, but if it fails to do so, members have no express right to demand a copy. They would need to resort to court action. The instrument does not require the entity to proactively notify members that a report is available. Members may not know to ask.

Seventh, the sunset clause may lull entities into complacency. But the obligations apply for all windings up that commence before 1 October 2030, even if the winding up continues past that date. The repeal does not extinguish existing duties; it only removes the provision for future windings up. Entities winding up after the repeal do not have to comply, but those that started before must continue until completion.

A responsible entity, responsible person, or operator subject to the new duties should take several steps. First, determine whether a scheme insolvency resolution or notified foreign passport fund insolvency resolution has been lodged with ASIC. If not, the duties do not apply. If yes, begin preparations immediately. Note the date of lodgement, as it marks the start of the duty period.

Second, establish a reporting calendar. Calculate the relevant periods. If the winding up is expected to take less than 12 months, only a completion report is due (within three months of completion). If more than 12 months, interim reports are due every 12 months from the start of the winding up. The first interim report is due within three months after the end of the first 12 months, and so on. Ensure the calendar accounts for partial periods on completion.

Third, prepare a template report that covers all required elements: progress and status (actions taken, required actions, proposed next 12 months, expected completion time), receipts and payments, value of scheme property or assets, and any potential return to members. Where information is commercially sensitive, consider whether it would genuinely be prejudicial to the winding up to disclose it. If withholding, document the reasons contemporaneously. Avoid the temptation to withhold routinely: the exception is narrow.

Fourth, set up adequate arrangements to answer member questions. This could include: designating a person or team to handle queries, publishing a dedicated email address or phone number, preparing standard responses to common questions, and setting an internal response time target (e.g., 10 business days). The arrangements must remain in place throughout the winding up, even during periods when no questions are received. Record the steps taken to maintain adequacy (e.g., training logs, availability checks).

Fifth, make reports available to members. The instrument does not prescribe the method. Sending by email, posting on a secure website, or making a physical copy available upon request are all likely acceptable. Consider the most efficient method given the member base. Retain evidence of availability (e.g., email sending logs, website publish date stamps) as proof of compliance within the three month window.

Sixth, if a member asks a question, answer within a reasonable period. What is "reasonable" depends on the complexity of the question. A simple query about the next proposed sale should be answered within days. A complex question requiring legal advice may take weeks. If the entity decides a question is not reasonable, it should politely explain why and invite the member to resubmit. However, erring on the side of answering is safer: ignoring a question risks a finding of inadequacy.

Seventh, after 1 October 2030, review whether the sunet has occurred. If the winding up commenced before that date, continue to comply. If it commenced after, no duty arises. If there is any doubt about the commencement date, seek legal advice.

Eighth, document all compliance steps: the date of lodgement of the resolution, the preparation and distribution of reports, the questions received and answers provided, and the maintenance of arrangements. This documentation is essential if ASIC later investigates.

Ninth, consider the cost of compliance relative to the assets available. If the scheme or fund has little property, the cost of preparing reports and answering questions may exceed any benefit to members. The entity cannot simply stop complying on cost grounds, but it may be able to minimise costs by using a standardised report format and limiting the level of detail to what is required. The prejudicial disclosure exception should not be used as a cost saving device; it is for genuine prejudice only.

Finally, monitor ASIC's regulatory guidance for any future interpretations of "prejudicial to the winding up" or "adequate arrangements". ASIC may also issue a no-action letter or class order relief in appropriate circumstances. The entity's professional adviser should stay abreast of developments.