Attachment F — Mutual Equity InterestsAttachment F — Mutual Equity Interests

Attachment F – Mutual Equity Interests

1. To be classified as a mutual equity interest, an instrument must satisfy all of the criteria in this Attachment and Attachment A to this Prudential Standard, except that paragraphs 1(b), 1(c), 1(e), 1(g), and 1(h) of Attachment A are to be read as follows:
   1. the mutual equity interest represents a claim against the issuer in liquidation that is subordinate to all claims other than members’ rights to residual assets;
   2. the holder of the mutual equity interest is entitled to a claim on the residual assets of the issuer after all senior claims, including the aggregate subscription price paid for all member shares, have been repaid in liquidation and;
      1. the holder’s claim ranks equally and proportionately with all other mutual equity interests directly issued or created on conversion of Additional Tier 1 Capital or Tier 2 Capital instruments in accordance with Attachment E to this Prudential Standard; and
      2. the holder’s claim cannot exceed the principal amount of the mutual equity interest, that amount being measured as:
         1. if the mutual equity interest was issued directly, the paid-up amount of the mutual equity interest; or
         2. if the mutual equity interest was created on conversion of Additional Tier 1 Capital and Tier 2 Capital instruments, the nominal dollar value of the Additional Tier 1 Capital or Tier 2 Capital instrument prior to conversion into the mutual equity interest;
   3. distributions on the mutual equity interest are paid out of distributable items (including retained earnings) of the issuer, and there are no features that require the issuer to make payments in kind. The level of distributions must not be tied or linked to the credit standing of the issuer. Distributions on all mutual equity interests on issue cannot, in aggregate, exceed 50 per cent of the issuer’s net profit after tax in the financial year to which the distributions relate.[47] All distributions on mutual equity interests must be treated as dividends for the purposes of HPS 110;
   4. distributions are paid only after all legal and contractual obligations have been met and payments on more senior capital instruments have been made;
   5. each mutual equity interest absorbs losses on a going concern basis proportionately, and pari passu, with all other mutual equity interests.
2. Issue documentation and marketing material for mutual equity interests must clearly and prominently state that:
   1. the mutual equity interest is neither covered by the Financial Claims Scheme nor guaranteed by the Australian Government;
   2. the principal amount of the mutual equity interest is perpetual and never repaid outside liquidation (other than discretionary repurchases subject to APRA’s approval);