ASIC offers mortgage fund withdrawal relief

The Australian Securities and Investments Commission (ASIC) will provide relief from the Corporations Act for the operators of frozen mortgage trusts.

The regulator will now consider applications from operators of frozen mortgage trusts to allow withdrawals by members on hardship grounds. ASIC said the relief would only be given on a case-by-case basis for mortgage trusts.

ASIC said that in normal circumstances, once redemptions in a fund are deferred, fund operators must follow procedures set out in the Corporations Act for withdrawals, which requires that all members be treated equally.

But under the relief provisions, investors suffering hardship will be permitted to withdraw funds up to a cap of the lesser of the specific amount requested under the hardship withdrawal request or $20,000 per member, plus 50 per cent of the balance of the member’s investment in the scheme.

“This cap means that hardship members will, along with other members, continue (but on a reduced basis) to participate in the risks and rewards of these investments,” ASIC said.

ASIC said that “generally”, hardship withdrawals will only be permitted where the member can prove they are unable to meet reasonable and immediate family living expenses, they require funds on compassionate grounds — for example, for medical costs, funeral expenses, or to prevent foreclosure — or in the case of permanent incapacity.

ASIC chairman Tony D’Aloisio joined the voices of those saying that the freezing of redemptions from many mortgage trusts was in the interests of all members, and does not necessarily point to a loss of asset value, or a risk that investors will not get their money back.

“This is a prudent measure taken by trustees to better protect all members at a time when outflow from these trusts has increased,” D’Aloisio said.