The High Court handed down its judgement in Wellington Capital Limited v Australian Securities & Investments Commission [2014] HCA 43 last week.
The court found that Wellington Capital did not have the power – either under its constitution or the Corporations Act – to distribute scheme 'property' by way of a transfer of shares in specie to unit holders.
A note by Gilbert+Tobin said the case indicates that REs may not have the power they think they have when it comes to making distributions.
"The scheme constitution is the primary source of the powers and duties of an RE, subject to the Corporations Act," Gilbert+Tobin said.
When determining whether an action is "within [the RE's power]", the constitution should not be relied on "in isolation", said the note.
"The case serves as a warning that in drafting a constitution, specific power may need to be conferred to enable such distributions to be made," Gilbert+Tobin said.
Commercial law firm Baker & McKenzie also issued an alert to its clients, with a list of 'to dos' for REs of managed investment schemes.
"Ensure that the constitution of the scheme is sufficiently clear regarding the circumstances in which a distribution of the scheme property can be made and if not, take steps to address the issue," Baker & McKenzie said.
"Consider whether there have been any prior distributions of property which may have been beyond your power," it said.
Finally, Baker & McKenzie warned that even if there are provisions in the scheme's constitution that suggest the RE has "absolute power and unfettered discretion to deal with the scheme's property", it is likely those provisions will be constrained by general trust law and Chapter 5C.2 of the Corporations Act.
