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Are you operating an illegal unregistered managed investment scheme?

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Many investment proposals not involving a direct subscription of funds in a company fall within the definition of a managed investment scheme under the Corporations Act 2001 (Cth).  In some cases, a scheme needs to be registered by the Australian Securities and Investments Commission (ASIC).  A registered managed investment scheme and its operator (known as a responsible entity) are subject to onerous regulatory requirements under Part 5C of the Act.

What is a managed investment scheme?

A managed investment scheme (MI Scheme) has all of the following features:

  • It is a scheme, that is, a program or plan of action coupled with the taking of steps to give effect to its purpose
  • Under the scheme, people contribute money or assets in exchange for rights (called interests) to obtain benefits produced by the scheme (whether the rights are actual, prospective, contingent and whether they are legally enforceable or not)
  • Any of the contributions are to be pooled or used in a common enterprise, to produce financial benefits, or benefits consisting of property rights or interests, for people who hold interests in the scheme (known as members)
  • The members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or give directions)

The statutory definition of MI Scheme specifically includes time-sharing schemes.

Examples of schemes

An obvious example of an MI Scheme is an investment trust (such as a unit trust), but the definition of MI Scheme is such that it could take many other forms, including contractual arrangements. Common business and investment arrangements which can give rise to MI Schemes include forestry and crop schemes, animal breeding schemes and collective investments in shares and other securities or property.  Often, but not always, these arrangements involve investors being granted an interest in securities, land or other property which is to be managed by a promoter with the intention of generating a return for investors.


Some arrangements which might otherwise be caught by the definition of MI Scheme are excluded under the Corporations Act, such as franchises, complying superannuation funds, typical barter schemes and certain retirement village schemes.

When does an MI Scheme need to be registered?

Subject to the exception discussed below, an MI Scheme must be registered with ASIC if:

  • the MI Scheme has more than 20 members; or
  • it promoted by a person who is in the business of promoting MI Schemes (or by an associate of such a person); or
  • ASIC has determined that the MI Scheme and one or more other MI Schemes are closely related, and the total number of members of the MI Scheme and those other MI Schemes exceeds 20.

However, an MI Scheme which satisfies any of the above tests does not need to be registered if all of the interests in the MI Scheme are issued in certain circumstances, including any one or more of the following:

  • The amount an investor needs to pay for acquiring interests in the MI Scheme is at least $500,000
  • The interests are provided for use in connection with a business that is not a small business (a small business is one that has fewer than 100 employees if it is a manufacturing business, or fewer than 20 employees if it is some other kind of business)
  • The interests are not provided for use in a business, and the investor in the MI Scheme is certified by a qualified accountant as having net assets of at least $2.5 million, or gross income for the last 2 financial years of at least $250,000
  • The interests are issued to a professional investor, which includes the holder of an Australian financial services licence (AFSL), a funds manager who has or controls gross assets of $10 million or more and an ASX-listed entity

The operation of an illegal unregistered MI Scheme carries significant criminal penalties, and may result in the MI Scheme being wound up by a court.

Seek timely advice!

The establishment, promotion and operation of a registered MI Scheme and related documentation are heavily regulated under the Corporations Act.  As a consequence, the costs and the required skills and experience associated with setting up and operating a registered MI Scheme are generally greater when compared to an unregistered MI Scheme or other investment vehicle.

Therefore, it is important to determine early in the planning stages of any kind of collective investment scheme you may be considering establishing or promoting whether, first, it is an MI Scheme and, secondly, if it will need to be registered by ASIC.  Obtaining sound and timely advice will avoid you unwittingly contravening the Corporations Act.

Our Corporate Advisory Team can answer any questions you might have on managed investment schemes or the Corporations Act.

Author:  Davide Cavalleri