New financial requirements - all responsible entities
As foreshadowed in Australian Securities and Investments Commission (ASIC) Class Order 11/1140 released in November 2011, new financial requirements applying to all responsible entities have now come into effect.

ASIC updated and clarified the financial requirements that will apply to responsible entities in Class Order 12/1295, which was issued on 25 September 2012.

In summary, the new financial requirements mean that responsible entities must now:

  • Meet increased net tangible assets (NTA) requirements
  • Hold more of their NTA in cash or cash-equivalent assets
  • Prepare more robust cash flow forecasts.

Increased NTA requirements
A responsible entity must now hold at all times NTA equal to the greater of:

  1. If scheme property is held through an eligible custody arrangement or the responsible entity does not operate a registered scheme although it is authorised to do so:
    • $150,000; or
    • 0.5% of the average value of scheme property capped to $5 million; or
    • 10% 'average responsible entity revenue'; or
  1. In all other cases:
    • $5 million; or
    • 10% of 'average RE revenue'.

The changes means that a responsible entity with 'average responsible entity revenue' (which is defined broadly but has been clarified in Class Order 12/1295) of more than $50 million will face an increased NTA requirement.

The calculation of components of NTA have also been clarified by Class Order 12/1295.

NTA liquidity requirements
Responsible entities must now hold at all times:

  1. In 'cash or cash equivalents', the greater of:
    • $150,000; or
    • 50% of the amount of the NTA requirement calculated above (assuming an eligible custody arrangement is in place); and
  1. In 'liquid assets', the amount of the NTA requirement calculated above (assuming an eligible custody arrangement is in place).

Cash flow projections
The responsible entity will be required to prepare and update 12-month rolling cash flow projections and have the projections approved by the board of the responsible entity at least quarterly.

Audit opinion
Responsible entities must also obtain an auditor's certificate that each of the above financial requirements have been met each financial year or as required by ASIC.

The Australian Securities and Investments Commission (ASIC) has indicated that it may grant relief from the new financial requirements on a case-by-case basis for 12 months if extenuating circumstances are demonstrated.

New disclosure requirements
Responsible entities should be aware that disclosure requirements relating to unlisted property schemes have also taken effect.

As contained in ASIC Regulatory Guide 46, ASIC has introduced a new benchmark model of disclosure and updated the disclosure principles.

All new Product Disclosure Statements must contain the new disclosure requirements. Responsible entities must also ensure disclosure of benchmarks and disclosure principles are updated in existing Product Disclosure Statements that remain in use after 1 November 2012.

Existing investors must also be provided with ongoing disclosure, which complies with the new disclosure requirements in Regulatory Guide 46.

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