What covenants should be included in the governing rules of an approved deposit fund to protect beneficiaries?

In Plain English

If you have money in an approved deposit fund (basically a special type of savings account), the rules that govern the fund must include certain promises to protect you.

  1. Promise to Pay You: If you ask in writing to withdraw your money, the fund must pay you within a reasonable time (no more than 12 months), as long as doing so doesn't break any rules.
  2. Director's Promise: Each director of the company managing the fund must make sure the fund keeps its promise to pay you.

These promises are automatically considered part of the fund's rules, even if they aren't written down. The fund decides how long it will take to pay you, but they can only change that timeframe with permission from ASIC (the corporate regulator) or by getting approval from the fund's beneficiaries.

Detailed Explanation

The Superannuation Industry (Supervision) Act 1993 outlines specific covenants that must be included in the governing rules of approved deposit funds to protect beneficiaries. Section 53 details these covenants:

  • Covenant to Repay Amounts to Beneficiaries: Subsection 53(1) states that if the governing rules of an approved deposit fund (excluding excluded approved deposit funds) do not contain covenants as described in subsection 53(2), they are automatically taken to include those covenants.
  • Content of the Covenants: Subsection 53(2) specifies the content of these covenants:
    • Repayment Request: Paragraph 53(2)(a) states that if a beneficiary requests in writing to withdraw their interest in the fund, the trustee must pay that amount within a period determined by the trustee (not exceeding 12 months). This is conditional on the trustee's compliance with the request not being inconsistent with the standards applicable to the fund under section 32 of the Superannuation Industry (Supervision) Act 1993.
    • Director's Responsibility: Paragraph 53(2)(b) states that each director of the trustee must ensure that the trustee adheres to the covenant in paragraph 53(2)(a).
  • Legal Personal Representatives: Subsection 53(2A) clarifies that references to a beneficiary also include the legal personal representative of a beneficiary.
  • Directors as Parties to Governing Rules: Subsection 53(3) stipulates that the covenant in paragraph 53(2)(b) is effective as if each director were a party to the governing rules.
  • Period for Payments: Subsection 53(4) states that the trustee determines the period within which payments are made to beneficiaries under paragraph 53(2)(a).
  • Variation of Payment Period: Subsection 53(5) allows the trustee to vary the payment period initially determined, but only under specific conditions:
    • ASIC Consent: Paragraph 53(5)(a) requires written consent from ASIC for the variation.
    • Beneficiary Approval: Paragraph 53(5)(b) requires compliance with the requirements of section 54 of the Superannuation Industry (Supervision) Act 1993.

Section 54 outlines the prerequisites for varying the repayment period:

  • Requirements for Variation: Subsection 54(1) lists the requirements that must be met for a variation of the repayment period:
    • Beneficiary Vote: Paragraph 54(1)(a) requires a vote on the variation at a meeting of the beneficiaries.
    • Meeting Notice: Paragraph 54(1)(b) mandates that the trustee convene the meeting by sending a notice to each beneficiary's last-known address at least 21 days before the meeting. The notice must include the date, time, and place of the meeting, as well as the reason for convening it.
    • Interest Threshold: Paragraph 54(1)(c) requires that the beneficiaries voting on the question hold interests equal in value to at least the prescribed percentage of the total value of all interests in the fund.
    • Vote Threshold: Paragraph 54(1)(d) requires that the prescribed percentage of the beneficiaries who voted on the question cast their votes in favor of making the variation.
  • Value of Interest: Subsection 54(2) defines the value of an interest for the purposes of paragraph 54(1)(c) as the price at which the trustee would have to make a payment in respect of the interest if required to do so under the covenant referred to in section 53 on the day immediately before the meeting.