The Australian Securities and Investments Commission (ASIC) today announced changes to Class Order 98/1418 [CO 98/1418] that remove the need for companies, their directors and professional advisers to obtain approval before being able to rely on the class order.
The changes to the class order take effect from 1 July 2004.
Under Class Order 98/1418, certain wholly-owned companies may be relieved from the requirement to prepare and lodge audited financial statements under Chapter 2M of the Corporations Act 2001 (the Act), where they enter into deeds of cross guarantee with their parent entity and meet certain other conditions.
Previously, a deed of cross guarantee or an assumption deed joining a company to an existing deed of cross guarantee was not effective unless approved by ASIC. Until approval was granted, a wholly-owned company did not have relief under the class order.
From 1 July 2004, ASIC will no longer approve these deeds of cross guarantee and assumption deeds. However, it will remain a requirement for relief that the deeds are lodged with ASIC.
From 1 July 2004 it will be necessary for:
- The wording of all deeds to be exactly in the form of the relevant ASIC pro-forma (with the exception of specific information such as company names and dates); and
- Companies wishing to take advantage of relief under Class Order 98/1418 to lodge, with the deed, certifications that:
(i) the deed wording is exactly the same as that in the relevant ASIC pro-forma, and it has been properly executed by the parties to the deed and binds the parties in accordance with the terms of the deed;
(ii) the audit reports of each company for the last three years were unqualified; and
(iii) the financial reports of each company for the last three years were lodged with ASIC on time.
The certification required in (i) must be provided by a legal practitioner holding a current practising certificate, which should include most in-house lawyers. The certifications in (ii) and (iii) must be provided by such a legal practitioner or by a registered company auditor.
These changes apply only to deeds and assumption deeds lodged with ASIC from 1 July 2004.
ASIC has made a checklist available as an aid to companies to ensure that they meet certain requirements for relief. The checklist is not exhaustive and is not a substitute for the company and its directors ensuring that all requirements for relief are met. This checklist is available from the ASIC website (www.asic.gov.au/financialreporting).
ASIC will check compliance with certain requirements for relief through surveillance on a random selection of companies. These checks may not occur around the time deeds are lodged, and companies and their directors should be aware the consequences of non-compliance can be serious.
Should a deed not be in the required form and/or any other conditions of CO 98/1418 not be met in respect of a particular financial year, relief will not be available. Each affected wholly-owned subsidiary will be required to comply with the normal financial reporting requirements of Chapter 2M of the Act for that financial year.
In ASIC’s experience, some common problems with the deeds and other documents lodged with ASIC include:
- The required statutory declaration by directors not being properly witnessed or containing incorrect statements such as:
- The wording of the deed was substantially in the form of ASIC’s relevant proforma when it wasn’t; and
- the entities substantially complied with their financial reporting and audit obligations under the Act, annual financial reports of the holding company or wholly owned entities not being lodged at all, or not lodged on time, for the past 3 years, contrary to a statement in the statutory declaration;
- The deed containing typographical errors or incorrect ACNs;
- The deed being incorrectly executed; and
- An alternative trustee being required to be appointed but has not been.
ASIC intends to take appropriate corrective action where a company that has not met the requirements for relief has failed to prepare and lodge an audited financial report with ASIC for one or more years.
End of release
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