Corporations Amendment (Litigation Funding) Regulations 2022

On 19 December 2022, ASIC announced several amendments to existing legislative instruments that provided relief which was not covered by the Corporations Amendment (Litigation Funding) Regulations 2022 (Cth) (Regulations). The Regulations came into effect on 10 December 2022 and bring the status of litigation funding schemes under the Corporations Act 2001 (Cth) in line with the law before 22 August 2020.

The Regulations, which were released for public consultation between 2 September 2022 and 30 September 2022, provide litigation funding schemes with an express exemption from the Managed Investment Scheme (MIS) regime contained within Chapter 5C of the Corporations Act 2001 (Cth) (Act). The Regulations further exempt litigation funding schemes from the Australian Financial Services Licence (AFSL) requirements, product disclosure regime and anti-hawking provisions contained within the Act. The Regulations recognise that the MIS and AFSL regimes were never intended to regulate the litigation funding industry in Australia.

The amendments introduced under the Regulations also have the effect of:

• clarifying the law following the Full Federal Court’s decision in LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103, which relevantly overturned a previous decision of the same Court in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11, in which the Court had found that litigation funding schemes were subject to the MIS regime; and
• bringing arrangements for litigation funding schemes in line with arrangements for other forms of litigation funding schemes (including insolvency litigation funding schemes), which maintained an existing exemption from the operation of  the MIS Regime, AFSL requirements, Product Disclosure regime and anti-hawking provisions.

However, the Regulations do not affect existing obligations for litigation funders to have adequate practices in place to manage conflicts of interest.

The ASIC relief includes the following:

• the extension of the ASIC Credit (Litigation Funding-Exclusion) Instrument 2020/37 to 31 January 2026. This instrument provides that litigation funding arrangements (and proof of debt funding arrangements) are exempt from the application of the National Credit Code;
• the extension of the ASIC Corporations (Conditional Costs Schemes) Instrument 2020/38 until 31 January 2026. This instrument provides that “litigation funding arrangements” under which members wholly or substantially fund their legal costs under a “conditional costs agreement” are exempt from the MIS regime and AFSL requirements as well as the anti-hawking and product disclosure provisions of the Corporations Act 2001 (Cth) (Act).;
• the revocation of the ASIC Corporations (Disclosure in Dollars) Instrument 2016/767 and ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787, on the basis that these instruments have been rendered redundant by the Regulations.

The changes to the relief have been made by ASIC Corporations & Credit (Amendment and Repeal) Instrument 2022/1032, and are said by ASIC to have been introduced for the purpose of providing “certainty” for funders, lawyers and members of litigation funding (and proof of debt) funding arrangements while the Government considers its policy position in respect of these types of arrangements.

ASIC’s administrative action is consistent with the policy behind the Regulations, and like the Regulations, it serves to provide further  clarity to the litigation funding industry, something that is much needed after more than two years of regulatory uncertainty.