Recent changes implemented by the Australian Securities and Investments Commission (ASIC) have relaxed some requirements for corporate groups to lodge consolidated financial documents, particularly the need to have a three-year history of compliance with their financial reporting obligations.
The Corporations Act 2001 (Cth) (the Act) requires the following entities to prepare a financial report and a director’s report:
- public companies
- large proprietary companies
- registered schemes
- listed entities and other disclosing entities
- holders of an Australian financial services licence
- registered foreign companies, and
- small proprietary companies that are controlled by a foreign company that is not registered in Australia.
Many large corporate groups presently take advantage provided by ASIC under ASIC Class Order 98/1418 (the Class Order), relieving them from the need to prepare separate financial reports for each of the companies in the group. In effect, only consolidated financial reports need to be prepared, significantly reducing the accounting, auditing and other compliance costs for the group.
Effect of the Class Order
Under the Class Order, public companies, large proprietary companies and small proprietary companies controlled by foreign companies can be relieved from the need to lodge separate financial reports under the Act if they are wholly owned by another company (the Holding Company) that lodges consolidated financial reports, subject to certain conditions and requirements being met. The principal condition is that the companies seeking to be relieved of their financial reporting obligations and the Holding Company must enter into a Deed of Cross Guarantee (the Deed). The Deed provides that each company that is party to the Deed, including the Holding Company, would guarantee the debts owed by each of the other companies in certain circumstances. Corporate groups seeking to take advantage of the Class Order should consider the potential effect of the Deed on group structuring arrangements.
Registered schemes, certain disclosing entities, Australian financial services licensees and registered foreign companies cannot rely on the Class Order for relief from their financial reporting obligations.
Previously, it is necessary for ASIC to approve new Deeds of Cross Guarantee. As from 1 July 2004, ASIC adopted a self-assessment approach to the process, requiring the Deed when lodged with ASIC to be accompanied by a certificate by a lawyer (and sometimes from an auditor) certifying that the Deed and other documents lodged comply with the Class Order.
Once the Deed is in place, all of the companies that are party to the Deed would meet their financial reporting obligations provided that the Holding Company lodges consolidated financial reports with ASIC and certain other procedural requirements are met.
March 2008 Changes to the Class Order
On 31 March 2008, ASIC announced a number of changes to the Class Order.
Before that time, a company needed to have satisfied its financial reporting obligations under the Act and the financial reports (if audited) needed to be unqualified for three years before the first financial year that it seeks to rely on the Class Order for relief. These requirements have been removed so that corporate groups can now seek relief under the Class Order even though the group members seeking to take advantage of it may not have met these requirements in the previous three years.
In the past, each company relying on the Class Order for relief must lodge a Form 389 with ASIC within four weeks after the end of the relevant financial year. ASIC had traditionally taken a very strict view to this procedural requirement, ruling that a company that failed to lodge a Form 389 within time would not be able to rely on the Class Order for relief in that financial year or in the following three years, due to the requirement for a three-year history of compliance before relief under the Class Order was available. This requirement has now been removed so that a form will only be required if a company did not want to be subject to relief under the Class Order for a particular financial year or if the corporate group changed its Holding Company.
Conclusion
For corporate groups that have previously not been able to obtain relief under the Class Order, the relaxed requirements by ASIC may now enable them to be relieved from the need to prepare and lodge separate financial reports for each group company. There is a need to act quickly if a company group wants to rely on the Class Order for the current financial year ending 30 June 2008, as the Deed and other documents must be lodged with ASIC prior to that date to do so.
For further information, please contact your usual PricewaterhouseCoopers Legal adviser, or:
Andrew Wheeler, Partner
Corporate and Commercial
Phone: +61 2 8266 6401
andrew.wheeler@au.pwc.com
