By Shane Ulyatt, Senior Associate, Axia Litigation Lawyers – 21st March 2025

Managed investment schemes have increasingly become a popular vehicle for collective investment in a range of asset classes. The Corporations Act 2001 (Cth) (Corporations Act) establishes a robust regulatory regime designed to safeguard investors and maintain market integrity.

This article provides an analysis of the statutory framework for managed investment schemes (MIS), examines the key elements required for an arrangement to qualify as a scheme, and highlights the practical consequences of non‐compliance.

In addition, it discusses judicial developments and offers guidance on meeting the obligations imposed on both scheme operators and their authorised representatives.

Under section 9 of the Corporations Act, an arrangement will be classified as a managed investment scheme if three core elements are satisfied:

Investors must contribute money or money’s worth in exchange for rights to future benefits. These rights may be actual, prospective, or contingent, and they establish the investor’s entitlement to any income or capital growth generated by the scheme. The precise outcome of these contributions is not determinative, as the focus is on the intended right to benefits.

All contributions must be aggregated or used collectively in a common enterprise. This means that investments are combined into one fund and used to acquire or develop assets for the benefit of all members rather than being directed toward individual, isolated interests.

Investors do not exercise routine control over the scheme’s operations. Instead, control is delegated to an operator, management committee, or trustee responsible for the day‐to‐day management. Although investors may have voting rights or receive periodic reports, these are not equivalent to effective operational control.

Once an arrangement qualifies as a MIS, mandatory statutory obligations are triggered. According to section 601ED(1)(a), any scheme with more than 20 investors must be registered. Registration requires a representative entity—typically a public company holding an Australian financial services licence (AFSL)—to comply with comprehensive disclosure, conduct, and governance requirements. Failure to register, or to provide an accurate and comprehensive product disclosure statement when required, exposes both operators and advisers to significant regulatory and civil penalties.

In situations where an unregistered scheme is operated in contravention of the Act, investors may elect to void their investment contracts pursuant to section 601MB. This voiding mechanism can result in investors recovering only a portion of their original contributions once any benefits received are accounted for and may trigger insolvency-like consequences where available assets are insufficient to satisfy all claims.

Entities and advisers involved with managing investment schemes are often required to enter into corporate authorised representative (CAR) agreements. These arrangements enable an AFSL holder to delegate the provision of certain financial services, including advice on structured investment products, to a representative. However, the obligations imposed by such agreements can be extensive. For example, authorised representatives may be required to:

In addition, recent regulatory decisions confirm that roles must be clearly delineated. An individual or entity cannot simultaneously act as an authorised representative and an intermediary for a managed investment scheme if such dual roles result in conflicts—for example, in the context of issuing, varying, or disposing of scheme interests.

Compliance with the relevant sections of the Corporations Act is essential. Failure to adhere to these requirements may expose the representative to significant legal risk and potential civil or regulatory action.

Judicial determinations have reinforced a “substance over form” approach in identifying whether an arrangement qualifies as a MIS. Decisions such as ASIC v Chase Capital Management and ASIC v Drake (No 2) consistently emphasise that the actual operational features—not marketing language or superficial assurances—determine regulatory status.

Similarly, recent opinions confirm that ambiguous contractual provisions, including those found in some CAR agreements, may lead to broad liability and indemnity obligations if the arrangement is not carefully structured and documented.

In view of the legal complexities surrounding managed investment schemes, both operators and authorised representatives should implement a rigorous compliance framework. Key practical measures include:

The importance of robust internal governance and unambiguous contractual drafting cannot be overstated. Ambiguities—especially regarding sub-authorisation, broad indemnity clauses, or discretionary training requirements—may provide additional avenues for disputes and potential personal liability. Organisations are strongly advised to engage legal representatives prior to executing any commitments that may expose them to such risks.

Compliance with the statutory framework and effective risk management are essential to operating and advising on managed investment schemes in today’s regulatory climate. Careful attention must be given not only to the fundamental elements of an MIS but also to the obligations imposed on authorised representatives under agreements with AFSL holders.

Inadequate documentation, ambiguous contractual terms, or failure to meet training and compliance obligations may lead to severe legal ramifications including regulatory action, voiding of investment contracts, or even personal liability for directors.

This article is intended for legal practitioners and sophisticated clients seeking to understand the intricate dynamics of managed investment schemes and the associated legal obligations. We recommend you seek tailored advice to ensure your operations align with the highest standards of regulatory compliance and risk management.

Navigating the complexities of managed investment schemes requires a deep understanding of regulatory obligations and a proactive approach to compliance. Whether you are an operator, adviser, or investor, ensuring that your scheme meets all legal requirements is crucial in mitigating risks and avoiding potential penalties. At Axia Litigation Lawyers, our experienced team can provide tailored legal guidance to help you structure, manage, and comply with your investment scheme obligations. Contact us today to discuss your compliance needs and safeguard your business from regulatory challenges.