111Application of fund

##### 111 Application of fund (1) Subject to this Part, a fidelity fund of a securities exchange shall be held and applied for the purpose of compensating persons who suffer pecuniary loss: (a) by reason of a defalcation, or fraudulent misuse of securities or documents of title to securities or of other property, by a member of the securities exchange who, when the loss is suffered, is a sole trader, or by an employee of such a member, in respect of money, securities, documents of title to securities or other property that, in the course of or in connection with that member’s business of dealing in securities, was or were entrusted to or received by the member or an employee of the member (whether before or after the commencement of this Act): (i) for or on behalf of another person; or (ii) by reason that the member was a trustee of the money, securities, documents of title or other property; or (b) by reason of a defalcation, or fraudulent misuse of securities or documents of title to securities or of other property, by a person who, when the loss is suffered, is a partner in a member firm, or by an employee of such a firm, in respect of money, securities, documents of title to securities or other property that, in the course of or in connection with the firm’s business of dealing in securities, was or were entrusted to or received by a partner in the firm or an employee of the firm (whether before or after the commencement of this Act): (i) for or on behalf of another person; or (ii) by reason that the firm, or a partner in the firm, was a trustee of the money, securities, documents of title or other property. (2) Where a right to compensation does not arise under subsection (1), a fidelity fund may, subject to this Part, be applied for the purpose of paying to an official receiver or trustee within the meaning of the Bankruptcy Act 1966 an amount not greater than the amount that he certifies is required to make up or reduce the total deficiency arising by reason of the available assets of a bankrupt, being a member of a securities exchange who is a sole trader or being a partner in a member firm recognized by a securities exchange being insufficient to satisfy the debts arising from dealings in securities that have been proved in the bankruptcy by creditors of the bankrupt. (3) Subsection (2) applies in the case of a member of a securities exchange, or a partner in a member firm recognized by a securities exchange, who has made a composition with his creditors, or has executed a deed of assignment or a deed of arrangement, under Part X of the Bankruptcy Act 1966 in like manner as that subsection applies in the case of such a member or partner who has become bankrupt and, for the purposes of that subsection as so applying by virtue of this subsection: (a) the reference in that subsection to a trustee shall be construed as a reference to a controlling trustee within the meaning of Part X of the Bankruptcy Act 1966; (b) the reference to debts proved in the bankruptcy shall be construed as a reference to provable debts in relation to the composition or deed within the meaning of that Part; and (c) references to the bankrupt shall be construed as references to the person who made the composition or executed the deed. (3A) Where a right to compensation does not arise under subsection (1), a fidelity fund may, subject to this Part, be applied for the purpose of paying to a liquidator of a body corporate that is being wound up (being a body corporate that is a member of a securities exchange) an amount not greater than the amount that the liquidator certifies is required to make up or reduce the total deficiency arising by reason of the available assets of the body corporate being insufficient to satisfy the debts arising from dealings in securities that have been proved in the winding up by creditors of the body corporate. (4) Except as otherwise provided in the following provisions of this section, the amount or the sum of the amounts that may be paid under this Part: (a) for the purpose of compensating pecuniary loss as referred to in subsection (1); or (b) for the purpose of making payments under subsection (2) or (3A), shall not exceed in respect of a member of a securities exchange who is a sole trader or in respect of a member firm recognized by a securities exchange the sum of $500,000. (5) For the purposes of calculating the sum referred to in subsection (4), an amount that is paid from a fidelity fund shall, to the extent to which that amount is repaid to the fund, be disregarded. (6) If a securities exchange considers, having regard to the ascertained or contingent liabilities of the fidelity fund, that the assets of the fund so permit, the securities exchange may, by notice published in the Gazette, increase the total amount that may be applied from the fund pursuant to subsection (4), and from the date of the publication of the notice until the notice is revoked or varied the amount specified in the notice is the total amount that may be applied as provided by this section. (7) A notice under subsection (6) may be revoked or varied by the securities exchange by notice published in the Gazette, and a notice that is so varied has effect accordingly. (8) If a securities exchange, having regard to the ascertained or contingent liabilities of the fidelity fund, considers that the assets of the fund so permit, the securities exchange may apply out of the fund such sums in excess of the amount limited by or under this section as the securities exchange, in its discretion, thinks fit in or towards the compensation of persons who have suffered pecuniary loss as referred to in subsection (1) or making a payment under subsection (2) or (3A). (9) Where: (a) any money, securities, documents of title to securities or other property has or have been entrusted to or received by, a person who has at any time been, but has ceased to be, a member of a securities exchange (in this subsection referred to as a former member) or entrusted to, or received by, an employee of such a person; (b) by reason of a defalcation, or the fraudulent misuse of the securities, documents of title or other property by the former member or by an employee of the former member, the person by or from whom the securities, documents of title or other property was or were so entrusted or received suffered pecuniary loss; and (c) at the time the money, securities, documents of title or other property was or were so entrusted or received, the person suffering the pecuniary loss had reasonable grounds for believing and did believe that the former member was at that time a member of the securities exchange concerned; a reference in this section to a member of a securities exchange shall be read as a reference to that former member. (10) A reference in this section to an employee of a member or former member of a securities exchange includes, in the case of a member or former member that is a body corporate, a reference to an officer of the body corporate. (11) A reference in this section to a defalcation, or to a fraudulent misuse of securities or documents of title to securities or of other property, is a reference to a defalcation, or to such a fraudulent misuse, wherever occurring.