ASIC to tackle conflicts of interest in litigation schemes
The Australian Securities and Investments Commission (ASIC) has released a consultation paper outlining new requirements for funders, insolvency practitioners and lawyers involved in a proof of debt scheme.
Introduced under the Corporations Amendment Act 2012, the new regulations exempt litigation schemes and proof of debt schemes from the definition of 'managed investment scheme' under the Corporations Act.
The rules also outline the obligation for professionals involved in the insolvency process to have adequate arrangements for managing conflicts of interest that may arise in relation to a litigation scheme or proof of debt scheme.
As a minimum, a funder and lawyer relying on the exemption in the regulations should have written processes and procedures to manage conflicts that address the following:
- effective disclosure of conflicts of interest to members of the scheme;
- controlling situations where interest may diverge or conflict;
- recruitment of prospective members (including ensuring senior personnel are not misleading and deceptive);
- in situations where the lawyer acts for both the funder and the members;
- review of the terms of the funding agreement in light of the law on unfair contracts and unconscionability.
According to ASIC commissioner John Price, the regulator is aware that this will be the first time many funders, insolvency practitioners and lawyers will be subject to the new requirements.
As such, ASIC will be seeking comments and submissions on Consultation Paper 185 until 21 September 2012.
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