Document ID: chunk:federal_register_of_legislation:F2024L00884:body:0:p35
Version: federal_register_of_legislation:F2024L00884
Segment Type: other
Provision Reference: 
Character Range: 89463–92310

at a time of conversion, foreign exchange markets were to be closed at the intended time of conversion.
31.         For mutually owned life companies, where a Tier 2 Capital instrument provides for conversion into mutual equity interests, the issue documentation must:
(a)          specify the number of mutual equity interests to be received upon conversion, or specify the conversion formula for determining the number of mutual equity interests received;
(b)          provide for the number of mutual equity interests to be received under the formula specified in (a) of this paragraph to be capable of being ascertained immediately, objectively, and without further steps; and
(c)          set the maximum number of mutual equity interests received such that the aggregate nominal value of the interests received cannot exceed, at the date of conversion, the nominal value of the Tier 2 Capital instrument converted.
32.         Conversion must generate an unequivocal addition to Common Equity Tier 1 Capital of the life company under Australian Accounting Standards.
33.         In issuing Tier 2 Capital instruments, a life company may, within the category of Tier 2 capital:
(a)          differentiate between instruments as to whether an instrument is required to convert or be written-off in the first instance; and
(b)          provide for a ranking under which Tier 2 Capital instruments will be converted or written off.
34.         Where a Tier 2 Capital instrument provides for a write-off mechanism, this mechanism must be structured so that:
(a)          the claim of the instrument on liquidation of the issuer is reduced to, or below, the value of the written-off instrument;
(b)          the amount of the instrument that may be paid if a call is exercised is irrevocably reduced to the value of the instrument after write-off;
(c)          there is an immediate and unequivocal addition to the Common Equity Tier 1 Capital of the life company; and
(d)          the distribution/payments payable on the instrument must be permanently reduced (i.e. distributions/payments must be calculated at no more than the rate set for the written-off value of the instrument).
35.         The instrument must not include a mechanism that would require a holder to sell the instrument to the issuer or a related entity of the issuer other than as part of a call option or redemption of the instrument. A mechanism that requires a holder to sell the instrument to a nominated party other than the issuer or related entity of the issuer will not constitute an incentive to redeem provided there is at least two years from the date upon which the holder is required to sell the instrument to the nearest subsequent date upon which conversion may be exercised.
36.         Where an instrument is drawn down in a series of tranches, it must meet