Describe any restrictions on the types of investors who may participate in private equity funds incorporated in your jurisdiction (other than those imposed by the applicable securities laws described above). Financial sponsor activity in Australia`s infrastructure sector remains strong, with increasing overlap between private equity and private infrastructure funds. Infrastructure investments are also particularly popular with pension funds, as they are considered a stable long-term profit. Growing global demand for renewable energy assets in the context of the clean energy push and the size of the Australian energy infrastructure market, along with a positive track record from financial sponsors, will lead to increased competition for investments in these assets. Describe any legal or regulatory developments arising from the recent global financial crisis affecting banks with respect to investment or sponsorship of private equity funds. The acquisition company in Australian private equity transactions is generally an Australian-based special purpose vehicle established for the purposes of the transaction. The special purpose acquisition company will typically have an Australian holding company and an Australian intermediary special purpose vehicle for acquisition financing purposes. It is very unusual for a private equity fund to enter the transaction documentation itself. In Australia, private equity deals are typically funded by a combination of equity and debt financing.
The security of equity financing is usually demonstrated by a letter of equity commitment provided by the private equity fund at the time of signing. If the private equity fund also intends to use the debt to fund the transaction, it will typically provide a debt commitment letter at signing, along with a condition sheet or facility agreement. Offers to state-owned undertakings are subject to additional funding guarantee requirements. With respect to institutional sponsors of private equity funds organized in your country, what are the main legal, regulatory and other material consequences for the private equity fund, its general partner and its investment advisor arising from a bankruptcy, insolvency, change of control, restructuring or similar transaction of the private equity fund sponsor? Equities: Managers may have the option to subscribe directly to shares of the holding company, and these shares may be of a different class of shares (with different rights) than those held by the private equity purchaser. It is common for the subscription price of these shares to be financed by a combination of the manager`s personal funds and a loan from the holding company. Describe any anti-money laundering or other regulations that apply in your jurisdiction that require due diligence, records, or disclosure of the identity (or other related information) of investors in a private equity fund or individual members of the sponsor. 5.33 The Committee believes that no convincing arguments have been made at present for further regulation of private equity activities in Australia. It acknowledges and endorses the ongoing monitoring mandate of the Ministry of Finance, RBA, ACCC, ASIC and FIRB on this issue. The provisions of Chapter 6 of the Companies Act, the conflict of interest rules, industry legislation and the FIRB guidelines provide adequate and adequate protection for Australian companies and the Australian public. The activities of Australian private and publicly traded companies continue to be reported under the Companies Act and international accounting standards established by the Australian Accounting Standards Board. Private equity consortia will be guided in their decisions by economic success and growth prospects.
5.19 The NIA explained that the current system of reporting requirements is based on the owner of the corporation, not the content of its activities. Therefore, a risk capital structure is a means by which companies can circumvent public reporting obligations. Tom Ravlic, NIA`s policy advisor, told the committee that the accounting profession has argued “for many years” that reporting requirements should be standardized based on the nature of the company`s business, not its ownership structure.  He argued that it was in the public interest to ensure that all “economically important” sectors, such as utilities and large transportation companies, were required to report publicly. That would give the public confidence in all of these industries, regardless of who owns them. Does your jurisdiction require the person offering shares of a private equity fund to have licenses or registrations? 5.4 ASIC and APRA also downplayed the threat that private equity could pose to the Australian economy. In their testimony before the committee, both regulators reiterated the RBA`s comments regarding the low and relatively low exposure of private equity activities in Australia. ASIC Vice President Jeremy Cooper pointed out that the current size of the private equity market in Australia is small compared to the overall value of the listed stock market. He also pointed out that Australian pension funds aim to keep their exposure to private equity at around four or five per cent.  APRA`s Executive Managing Director, Tom Karp, told the committee that Australia`s five largest domestic banks have exposure limits to private equity and leveraged loans of $1-3 billion, which is less than five to ten percent of a bank`s total capital. It estimated that the private equity exposure of Australian superfunds regulated by APRA is approximately one per cent of total assets.  In Australia, management pooling mechanisms or “custodian agreements” are often used to ensure that the number of shareholders remains below 50 to ensure that the company remains a private company. These arrangements allow a trustee to hold assets such as shares on behalf of the underlying beneficiary. Following several high-profile transactions using the mechanism for accounting for capital in public market transactions, equity stub agreements have been the subject of extensive review by the Australian Companies Supervisory Authority. ASIC has confirmed that stub capital agreements are permitted for share offerings of a public company (including an unlisted public company). However, this does not apply to stub capital agreements in private companies. The rationale for this distinction is that equity in private companies would allow bidders to circumvent important protections (such as disclosure requirements) afforded to retail investors in public companies, which would defeat the purpose of this protection. Custodial agreements have been confirmed as eligible as long as they contain “conversion and termination provisions” that require a special beneficial ownership decision for changes. 5.29 The Committee received a brief and testimony from AVCAL on the benefits and impact of risk capital on the Australian economy. Not surprisingly, AVCAL has identified several benefits of private equity for the wider local economy. These include growth in employment, the fund administration industry, productivity and innovation, retirement savings, and corporate revenues and exports.
The following section examines aspects of the impact of risk capital activities on employment levels and pension insurance. Would a private equity fund vehicle incorporated in your country be taxed there in terms of income or profits? Will the fund have to withhold taxes on distributions to investors? Please describe the conditions, if any, that apply to a private equity fund to benefit from the applicable tax exemptions. Can private equity funds be listed on a stock exchange in your country and, if so, is this common? What are the main initial and ongoing requirements for registration? What are the pros and cons of an ad? 5.17 Mr. Jones also pointed out that of the 80 companies delisted from the Australian Stock Exchange in 2006, only two were privatized by private equity. He added that in terms of fears of an influx of private equity funds into Australia, “there is simply nothing to show”.  He also noted that Myer, which is currently owned by a private equity consortium, is opening new ventures, attracting capital, reducing costs and increasing profits.  In addition, as noted in question 17, a trust that is actively engaged in commercial activity or that controls a business that carries on an active business may, in certain circumstances, itself be treated as a business. The ATO initially considered that a veto could amount to a control for these purposes.
This view has evolved over the course of this year and, once completed, could have a significant impact on how venture capital and private equity funds are involved in the governance of the companies in which they invest. Subject to the special rules described below, private equity fund profits are generally treated as income (as opposed to capital) unless it can be demonstrated that the relevant fund is expected to generate income in the form of regular returns (not just capital gains) during the holding period.