The recent decision in Re AMP Capital Funds Management Limited  NSWSC 986, has sought to clarify the uncertainty around the application of section 253E of the Corporations Act, which determines whether a responsible entity of a registered managed investment scheme, and its associates, are entitled to vote on a members’ resolution of that scheme. Whether a responsible entity’s associates can vote is often a key issue in trust schemes, IPOs and varying a schemes’ constitution.
It has always been clear that a responsible entity of a listed scheme and its associates are entitled to vote on a change of responsible entity. However, historically there has been confusion in the market regarding whether this section precludes an associate of the responsible entity from voting on other resolutions when the responsible entity, but not the associate, has an extraneous interest in the resolution. If section 253E is given its ordinary meaning, it would have the effect of preventing an associate of a responsible entity with an extraneous interest from voting, despite the associate itself not having such an interest.
This broader construction recognises that associates have the ability to act jointly for the purpose of creating a benefit for one or more of their number, despite it not benefiting the voting entity. This behavioural trait is well recognised and the key driver of the regulation of associates under the Corporations Act. Of course the difficultly with regulating associates effectively and equitably is defining the entities that should be regarded as associates.
Confusion about the proper application of section 253E has been exacerbated as a result of conflicting authorities. In Re Great Southern Managers Australia Limited, the court’s view was that section 253E only prohibited an associate of a responsible entity from voting if that associate had an interest other than as a member of the scheme.
Contrary to this view, in Everest Capital Limited v Trust Company Limited, the court held the view that merely being an associate of a responsible entity with an interest other than as a member disentitled that associate from voting. The most recent decision in Re AMP Capital Funds Management Limited makes it clear that this view is to be preferred.
It will be interesting to see whether the ruling in Re AMP Capital Funds Management Limited prompts amendments to the Takeover Panel’s Guide Note 15 relating to trust schemes. Guidance Note 15 states that trust schemes should be subject to a condition that it will only be approved if the resolution is passed disregarding any votes cast in favour by, among others, “the responsible entity of the target and its associates (other than related fund managers)”. Given the uncertainty that previously existed, this was interpreted to mean that even if an associate could vote, from the Takeover Panel’s perspective, this might only be appropriate when that associate was a fund manager acting in the interests of its (third party) clients and beneficiaries.
However, Re AMP Capital Funds Management Limited arguably closes the door on any voting by the responsible entity or its associates where any of them have an interest in a resolution other than arising as a member of the scheme, unless it’s a listed scheme and the resolution relates to a change of responsible entity.