Some more 5 Nov 14 judgement analysis from...

Some more 5 Nov 14 judgement analysis from
ttp://www.piperalderman.com.au/publications

Just these juicy snippets:
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Power to distribute
… Wellington also relied on clause 13.2.5, which allowed it to “dispose of… or otherwise deal with Scheme Property as if the Responsible Entity were the absolute and beneficial owner”.
However, on appeal to both the Full Court of the Federal Court, and the High Court, those arguments were rejected.

Full Federal Court
… The incorporation by indirect reference in clause 13.1 of the powers conferred on a company by s 124, did not therefore confer a power to distribute Scheme Property to members of the Scheme, without their consent. Further, the Full Court held that s 124 referred to the distribution of company property to members of a company, and not to members of a managed investment scheme.

High Court
Application of trust law
… Wellington, as the Responsible Entity, had duties imposed on it by s 601FC(1) of the Act, including a duty to act honestly, a duty of care and diligence, and a duty to act in the best interests of the members. In addition, Wellington had the duties of a trustee under s 601FC(2), and accordingly the duties of a fiduciary.
The High Court emphasised that these trustee obligations were statutory in nature, and did not arise as an operation of general law.

Constitution
… Wellington also relied on clause 26.7 that provided for unclaimed or undistributed “money or other property” to be transferred to ASIC in the event of a winding up.
However, the High Court held that this was confined to the winding up process, and did not support a contention that Wellington had a general power to distribute property other than cash.

Duties inform Constitution
Of central importance to the High Court’s decision was that the Constitution had to be read subject to the statutory duties and fiduciary obligations of the Responsible Entity. Those duties and obligations constrained the powers set out in clause 13. Also, the controls on related party transactions in Part 5C.7 of the Act constrained the Responsible Entity’s power to deal with the Scheme Property as though it were its own.

These duties pointed to clause 13 being an enabling provision. Thus clause 13.1 and 13.2.5 “had nothing to do with the circumstances in which assets or capital forming part of the Scheme Property could be returned to unit holders.” It was irrelevant that an absence of power to do so could leave the Responsible Entity with illiquid assets which could not be distributed to unit holders.
In that event, the High Court maintained, there should be an amendment to the Constitution or even a winding up of the Scheme pursuant to s 601NC(1) on the basis that its purpose couldn’t be accomplished. Alternatively, the other mechanism for the return of Scheme Property by way of capital would be upon a winding up, pursuant to clause 26 of the constitution or otherwise under the provisions of Part 5C.9 of the Act.

Accordingly, the High Court upheld the Full Court’s declaration that a transfer of the Scheme Property in specie was beyond Wellington’s power, and it was left to each unit holder to decide whether it would accept the transfer, seek to rescind the transaction, or take other appropriate action.

For further information, please contact Lisa Gallate.
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And there you have it, especially the last paragraph, leaving it to PIF members to decide and take the next positive step.
The above is just about the best free advice PIF can be grateful for in this avalanche of recent adversities.

Regards