ASIC Corporations (Managed Investment Schemes: Interests Not For Money) Instrument 2016/1107

This legislative instrument, made under subsections 601QA(1), 926A(2), 992B(1) and 1020F(1) of the Corporations Act 2001, exempts three classes of managed investment schemes from key regulatory obligations that would otherwise apply under the Act. The exemptions operate mechanically: a person running a scheme that falls within one of the defined categories does not have to comply with subsection 601ED(5) (the obligation not to operate an unregistered managed investment scheme), subsection 911A(1) (the requirement to hold an Australian financial services licence when providing financial services), section 992A (the ban on hawking financial products) and Part 7.9 (the product disclosure statement requirements). In effect, the instrument creates a carve-out that allows these schemes to operate without ASIC registration, an AFSL, compliance with hawking prohibitions, or the preparation and distribution of a PDS.

The three defined categories are: film investment schemes, interests not for money schemes, and show schemes. Each category has its own conditions, but they share a common structural feature - the consideration for acquiring an interest in the scheme is not money (or, where money is involved, is limited to separately disclosed fees for services or reimbursement of incidental expenses). The relief is not open-ended; it attaches only to schemes that meet the precise definition in section 4. A scheme that does not satisfy all elements of the relevant definition remains subject to the full regulatory framework, including potential criminal and civil liability for operating an unregistered scheme or providing financial services without a licence.

The instrument has been amended twice since its original registration in December 2016. Amendments in 2017 replaced paragraph (b) of the definition of “interests not for money scheme”, and amendments in 2021 expanded the relief in subsections 5(3), 6(3) and 7(3) to include Part 7.9 of the Act - meaning the PDS exemption was added or clarified at that point. The practical effect is that from 5 October 2021, operators of qualifying schemes need not produce a PDS for offers of interests. Before that amendment, the scope of relief was narrower.

The instrument relies on three defined terms that each create a separate pathway to exemption. “Film investment scheme” means a managed investment scheme for developing or producing a cinematograph film (including a script or component), where each offer or issue of interests is made to a specific list of entities: the ABC, Children’s Television Foundation, Screen Australia, various state film agencies, the SBS, a person whose ordinary business is broadcasting or distributing films and who has a right to license or exploit the copyright in the film, or in circumstances that (apart from this instrument) do not require a PDS. The definition does not limit the number of participants, but each offer must be to one of these categories. This is a targeted carve-out for the film industry, allowing producers to raise contributions from broadcasters, screen agencies and distributors without triggering the usual fundraising disclosure and registration rules.

“Interests not for money scheme” is more broadly defined. It covers a scheme arising from a contract under which every interest is issued as consideration (in whole or part) for one of four types of contribution: personal or professional services; intellectual property or know-how resulting from the participant’s labour; goods imported, manufactured or produced by the participant in the ordinary course of its business; or land held by the participant (or a prior participant) for at least six months before any offer of an interest, or a business owned by the participant for at least six months before any offer. Crucially, no money and no financial products can be paid or transferred by the participant in return for the interest, except a fee for services rendered or reimbursement of incidental expenses, which must be separately disclosed before the contract is entered into. Additionally, any right of the participant to terminate the contract or take action for default must not be conditional on the approval of other parties who have entered into similar contracts with the issuer. The interest must also not relate to any other managed investment scheme. The definition contains a second limb: paragraph (b) captures circumstances where, apart from this instrument, a PDS is not required. However, the definition excludes a scheme if all interests have been issued under that second limb. This is a notable structural quirk - a scheme that is entirely wholesale or otherwise PDS-exempt cannot use this exemption; it must fall back on the specific conditions in paragraph (a). The apparent intent is to prevent the relief being used as a backdoor for schemes that already have an exemption, while still allowing a scheme where only some interests are issued in PDS-exempt circumstances.

The primary beneficiaries are the issuers or operators of managed investment schemes that fall within one of the three categories. These operators are relieved from the obligation to register the scheme under section 601ED, from holding an AFSL to the extent they provide financial services in relation to interests in the scheme, and from complying with hawking and PDS rules. This reduces both upfront compliance costs (no need to prepare a PDS or register with ASIC) and ongoing costs (no requirement to hold a licence or maintain compliance systems that would be needed for a fully regulated managed investment scheme). The relief is especially valuable for small-scale creative projects, film productions, and joint ventures where participants contribute services, IP or goods rather than cash.

Participants who contribute services, IP, goods, land or businesses in return for an interest are also affected, though indirectly. The instrument does not impose duties on them; it removes regulatory barriers that would otherwise apply to the issuer’s offer. Participants may receive an interest in the scheme without the standard disclosure protections (PDS) and without the scheme being subject to ASIC oversight. The instrument assumes that participants who are contributing non-cash consideration are sufficiently sophisticated or have other means of protecting their interests - for example, through contract terms or because they are negotiating at arms’ length. That assumption is a policy choice with real consequences: a participant contributing a valuable business or IP may not have the same information about the scheme’s risks and returns as they would if a PDS were required.

Financial services providers, including advisers, brokers and intermediaries, are also affected. The exemption from subsection 911A(1) means that a person providing financial services (such as arranging for a participant to acquire an interest) does not need an AFSL for that specific activity, provided the interest is in a qualifying scheme. This can reduce the cost of distributing interests, but it also removes the consumer protection that comes from dealing with a licensed entity. The person providing the services must still ensure the scheme actually meets the definition; if it does not, they may be operating without a licence and face penalties.

ASIC is affected in its regulatory role - it does not register these schemes and does not monitor them under the usual managed investment regime. The instrument is a conscious regulatory concession, presumably based on a cost-benefit analysis that the regulatory burden would outweigh investor protection benefits in these niche circumstances.

The instrument does not create duties or rights; it removes them. The key legal effect is that the normal statutory duties that apply to operators and promoters of managed investment schemes do not apply. The rights that participants have are purely contractual, grounded in the contract under which the interest is issued. The instrument imposes no ongoing obligations on the issuer to report to participants, to hold meetings, to appoint a responsible entity, or to lodge financial statements with ASIC. Participants must rely on their contract rights and general law (including the law of misrepresentation, fraud and unconscionable conduct) if something goes wrong.

However, the instrument’s conditions for exemption create de facto requirements that must be met for the scheme to qualify. The issuer must ensure that every interest in the scheme is issued in line with the definition. For an “interests not for money scheme”, this means that no money or financial products pass from the participant (except disclosed fees or reimbursements), that the participant’s termination rights are independent, and that the interest does not relate to another scheme. These conditions are not express duties under the instrument, but failure to comply means the exemption is lost and the issuer becomes liable for operating an unregistered scheme, breaching the AFSL requirement, and failing to give a PDS (if the offence provisions apply). The instrument therefore creates a compliance risk: the issuer must monitor the scheme to ensure that every interest issued meets the conditions. If one interest is issued for cash (beyond the allowed fees), the entire scheme may fall outside the definition and the exemptions cease to apply.

For film investment schemes and show schemes, the conditions are similarly precise. The issuer must verify that each offer is made to a qualifying entity (for film schemes) or that the consideration is only services or IP (for show schemes). The lack of a registration requirement means there is no public record of the scheme. Participants have no statutory right to withdraw or to receive ongoing disclosure. Their contractual rights may include the right to terminate the contract only if the issuer breaches the contract, but that right must not be dependent on approval of other participants. This is a notable protection: the instrument ensures that each participant’s contractual rights are independent, preventing the issuer from tying a participant’s remedies to the actions of others.

The instrument itself sets no penalties. Enforcement is indirect: if a scheme does not meet the definition, the exemptions are inapplicable and the normal penalties under the Corporations Act apply. Operating an unregistered managed investment scheme under section 601ED(5) is a criminal offence with a maximum penalty of 200 penalty units (currently $55,000) or five years imprisonment, or both. Providing financial services without a licence under subsection 911A(1) can lead to civil penalties of up to $1.1 million for an individual and $11 million for a body corporate, or criminal penalties with imprisonment of up to two years. Breaching section 992A (hawking) carries a maximum penalty of 600 penalty units (currently $165,000) or imprisonment of five years, or both. Failing to give a PDS in breach of Part 7.9 can attract civil penalty orders of up to $1.1 million for individuals and $11 million for bodies corporate.

These penalties do not apply if the scheme genuinely falls within the instrument. But the burden is on the operator to demonstrate that the scheme meets the definition. If ASIC investigates and finds that money was paid (other than disclosed fees) or that a participant’s termination rights were conditional on approval of others, the exemptions vanish. The instrument therefore creates a trap for the unwary: an operator who thinks they are exempt but has misapplied the conditions can be prosecuted as if the exemptions never existed.

Civil enforcement is also possible. Participants who suffer loss because the scheme turns out to be unregistered and unregulated may have limited remedies. They cannot rely on the statutory compensation regimes that apply to licensed entities or registered schemes. Their primary avenue is contract law, possibly with claims for misleading or deceptive conduct under the ASIC Act or the Australian Consumer Law if the issuer made false representations. But those claims require proof of conduct, not merely a failure to comply with regulatory requirements.

ASIC retains its general enforcement powers. It can issue infringement notices, seek civil penalties, or commence criminal proceedings if it discovers that a scheme operating under the instrument does not in fact satisfy the conditions. The instrument does not prevent ASIC from investigating a scheme or from issuing a stop order if it believes the exemptions are being misused.

The instrument operates as an exception to specific sections of the Corporations Act 2001. It does not override any other Commonwealth, state or territory law. The Copyright Act 1968 definitions are imported for “cinematograph film” and “work”, but beyond that the instrument does not affect copyright, trade practices, contract or tax law. The interaction with the managed investment scheme provisions is the most important. A scheme that qualifies for the exemption is still technically a managed investment scheme under section 601ED(1); it is simply not required to be registered by reason of the exemption in subsection 601ED(5). This means the scheme’s operator is not subject to the full suite of obligations under Chapter 5C (the managed investment provisions), including the requirement for a constitution, a compliance plan, a responsible entity, and ongoing reporting to members. The scheme remains a legal entity if it is a trust, but there is no ASIC oversight of its operations.

The relief from the AFSL requirement in subsection 911A(1) is limited to financial services provided in relation to interests in the qualifying scheme. A person who provides financial services in relation to other products or who engages in general advice outside the scheme still needs a licence. The instrument does not exempt the provider from other obligations under the Corporations Act, such as the best interests duty (if applicable) or the ban on unsolicited contact (except that the hawking ban under section 992A is itself exempted in relation to these interests). The interaction with the hawking provisions is complex: the exemption from section 992A means that an issuer can directly offer interests without the normal restrictions on unsolicited offers, but only if the scheme is within the definition. This may be attractive for “cold calling” investors, but the issuer must still avoid misleading or deceptive conduct.

The interaction with Part 7.9 (PDS) means that no disclosure document is required. However, the instrument does not exempt the issuer from the general prohibition on misleading or deceptive conduct in section 1041H of the Act or in the ASIC Act. Any promotional material must still be accurate. Moreover, if the issuer makes an offer to a retail client that would normally require a PDS, and the client does not receive one, the client may have a right to rescind under section 1016E of the Act (if the offer was not covered by an exemption). The instrument ensures that offers of interests in qualifying schemes are covered by an exemption, so that right does not arise. But if the scheme does not qualify, the client could rescind.

The instrument was originally made on 2 December 2016 and registered on 6 December 2016 (F2016L01855). It has been amended twice. The first amendment, ASIC Corporations (Managed Investment Schemes: Interests Not For Money) Amendment Instrument 2017/65, was registered on 23 March 2017 and commenced on 24 March 2017. It replaced paragraph (b) of the definition of “interests not for money scheme” in section 4. The original wording is not reproduced in the compilation, but the effect was to clarify or restrict the circumstances in which a scheme that otherwise would not require a PDS can rely on the interests not for money definition. The accompanying endnote records that paragraph (b) was “rs.” (repealed and substituted) by 2017/65. This amendment likely responded to concerns about the scope of the original definition.

The second amendment, ASIC Corporations (Managed Investment Schemes: Interests Not For Money) Amendment Instrument 2021/799, was registered on 22 September 2021 and commenced on 5 October 2021. It amended subsections 5(3), 6(3) and 7(3). The pre-amendment text of those subsections is not provided, but the endnote says they were “am.” (amended) by 2021/799. Given that the current text refers to “section 992A and Part 7.9 of the Act”, and the amendment history notes that these subsections were amended, the likely effect was to add the reference to Part 7.9. Before October 2021, the relief may have covered only the hawking prohibition (section 992A) and not the PDS requirements. If that inference is correct, then for the first four years of its existence, the instrument did not exempt operators from the obligation to give a PDS - a significant limitation. An operator relying on the instrument before 5 October 2021 could have faced a PDS obligation even if they were exempt from registration and licensing. The 2021 amendment therefore broadened the relief considerably. Anyone assessing the compliance of a scheme that operated before that date should check the version of the instrument that applied at the relevant time.

The instrument also originally contained a section 2 (date of effect), which was repealed by operation of section 48D of the Legislation Act 2003. This is a standard clean-up provision.

The instrument does not cite any cases, and there is no publicly recorded litigation history in the compilation. No court has interpreted its provisions. The instrument’s definitions have not been judicially considered, so any interpretation carries some risk until a court or tribunal addresses them. The lack of litigation does not guarantee that the definitions are clear; it may simply reflect that the instrument is used infrequently or that disputes have been settled privately. Terms such as “personal or professional services”, “know-how” and “incidental expenses” are likely to be the subject of argument if a scheme comes under scrutiny. The 2021 amendment also suggests that ASIC itself saw a need to clarify or extend the relief, implying that the original scope was ambiguous.

Several features of the instrument can catch out an operator who does not read the definitions closely.

First, the “interests not for money scheme” definition contains a trap in paragraph (b). If every interest in the scheme is issued in circumstances that (apart from this instrument) do not require a PDS - for example, all offers are to wholesale clients under section 761G - then the scheme is excluded from the definition. This means a scheme that is entirely wholesale cannot rely on the relief, even though it meets the core condition of no money being paid. The operator must then look to other exemptions, such as the wholesale client exemptions themselves, or face registration and licensing obligations. The logic seems to be that the instrument is intended for schemes where some participants would ordinarily receive a PDS, but the operator wants to avoid that burden. But if all participants are already exempt, the instrument gives no additional benefit. An operator who sets up a scheme with only wholesale participants thinking they are doubly exempt will be caught out: they cannot use the interests not for money exemption, and they must rely on the wholesale client exemption under section 761G, which does not exempt from registration or licensing unless the scheme also meets the “professional investor” test or another specific exemption. This is a serious gotcha.

Second, the requirement that “no money is to be paid and no financial products are to be transferred” is absolute for interests not for money schemes and show schemes. The only exceptions are fees for services rendered or reimbursement of incidental expenses, which must be separately disclosed before the contract. “Incidental expenses” is not defined and could be disputed. If a participant reimburses the issuer for travel costs or legal fees, the operator must ensure the amount is reasonable and disclosed in advance. A failure to disclose the nature of the services or expenses and the applicable cost or calculation method means the exemption is lost. This is a formal trap - a slip in documentation can collapse the entire relief.

Third, the requirement that “any right of the participant under the terms of the contract to terminate the contract or otherwise take action for default is not dependent upon the approval or other action of persons who have entered into similar contracts with the issuer” means that each participant must have individual termination rights. A contract that requires a majority vote of participants to enforce a default clause will violate this condition. The issuer must draft contracts with independent rights for each participant. If the scheme has many participants, this can create complexity in managing defaults.

To rely on the instrument, an operator must first determine which category the scheme falls into, then ensure that every interest issued satisfies the relevant conditions. There is no requirement to notify ASIC or to seek approval; the exemption is self-executing. However, the burden of proof lies with the operator if a dispute arises. Practical steps include:

1. Draft the scheme’s constitutional documents (trust deed or contract) to explicitly provide that interests are issued only as non-cash consideration. The contract should specify that no money or financial products are payable by the participant, except for disclosed fees for services or reimbursements.

2. For interests not for money schemes, the operator must ensure that each participant’s contribution falls within one of the four categories: services, intellectual property, goods, land or business. The standard of proof for “know-how” or “intellectual property” may require documentation of ownership or creation. For goods, the participant must have imported, manufactured or produced them in the ordinary course of business. A participant who is a retailer reselling goods may not qualify unless they also manufactured or imported them.

3. For land or business contributions, the operator must verify and document the date when the participant first held the land or owned the business, and confirm that it was at least six months before the first offer of any interest in the scheme. A due diligence check on the participant’s ownership history is advisable, including a search of title records or business registration.

4. The operator must ensure that no participant pays money or transfers financial products in connection with the interest. The only permissible payments are fees for services rendered by the issuer or reimbursement of incidental expenses, and these must be separately disclosed in writing before the contract is entered into. The disclosure must include the nature of the services or expenses and either the applicable cost or a means of calculating it. The operator should maintain records of these disclosures, signed or acknowledged by the participant.

5. The participant’s termination rights must be independent of the approval of other participants. The contract should state clearly that each participant may terminate for default without needing consent from other participants. The operator should audit existing contracts to ensure they do not contain majority-vote clauses for default remedies.