ASIC Grants Hardship Relief for Withdrawals from Frozen Funds

The Australian Securities and Investments Commission (ASIC) has announced new relief measures for operators of managed funds to facilitate withdrawals by members who are facing financial hardship during the COVID-19 pandemic.

The conditional relief implemented by the ASIC Corporations (Hardship Withdrawals Relief) Instrument 2020/778, registered on 27 August 2020, will apply to all responsible entities (REs) of registered managed investment schemes (MIS) that have become “frozen funds”.

The relief measures will ease some of the statutory restrictions on REs and improve access to investments by members who meet specific hardship criteria. ASIC previously granted hardship relief to REs of frozen funds on a case-by-case basis only. ASIC has also issued Information Sheet INFO 249 Frozen funds – information for responsible entities to provide updated guidance about frozen funds.

Frozen funds

At times of extreme market volatility, some managed funds may need to suspend redemptions and freeze funds to protect the interests of the members as a whole. A fund is frozen when the responsible entity has suspended or cancelled redemptions to prevent withdrawals from destabilising their fund. When a fund is frozen members will generally not have access to their investments for a period of time. This does not necessarily mean that there has been a loss of asset value or that investors will not get their money back eventually.

ASIC Deputy Chair Karen Chester has said the hardship relief will make it easier for REs of frozen funds to enable withdrawals by investors suffering hardship. However, in doing so, REs will still have to act in the best interests of members.

Eligibility criteria

To be eligible to make hardship withdrawals from frozen funds, a member must meet at least one “hardship criterion” such as severe financial hardship, unemployment for over three months, compassionate grounds or permanent incapacity. An eligible member may:

  • withdraw up to a total of $100,000 of their investment per calendar year; and
  • receive up to four withdrawals per calendar year.

An RE has the discretion to facilitate a hardship withdrawal where the RE is satisfied that the member has met the hardship criteria. Members of frozen funds should contact their RE for information on hardship withdrawals in the first instance. More information on frozen funds is available on ASIC’s Moneysmart website, www.moneysmart.gov.au.

Important: Clients should not act solely on the basis of the material contained in Client Alert. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

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