The Australian Securities and Investments Commission (ASIC) has announced a number of changes to

Class Order [CO 98/1418] Wholly owned entities, which provides certain wholly-owned subsidiaries with relief from the requirement to prepare financial reports. The changes will enable more companies to rely on the relief and reduce the administrative work for group companies.

ASIC has also announced new relief under Class Order [CO 08/15] Disclosing entities – half-year financial reporting relief. [CO 08/15] relieves a disclosing entity from the requirement to prepare and lodge a half-year financial report and directors’ report during the first financial year of the entity, where that first financial year lasts for eight months or less.

Changes to CO 98/1418

The main changes are:

(i) removing the requirement for a three year compliance history with the financial reporting requirements of the Corporations Act 2001 (the Act) (paragraph (p) of the first order of [CO 98/1418]);

(ii) replacing the requirement to lodge an annual notice concerning use of the class order with a requirement to lodge a notice when the relief is first applied or the group holding entity changes, and another notice when the company ceases to apply the relief;

(iii) reducing the matters which must be addressed in the certificate required under [CO 98/1418];

(iv) removing the requirement for a statutory declaration when first entering into a deed; and

(v) removing the requirement to lodge solvency statements by directors under the order and simplifying the signing requirements for those statements.

ASIC is also adopting a no action position in relation to certain past failures to lodge the annual notice referred to in (ii) above.

Background

Class Order [CO 98/1418] provides conditional financial reporting preparation, audit and lodgement relief to a company that is party to a deed of cross guarantee. The company must be a wholly-owned subsidiary (as defined in the order) of another company (the Holding Entity) and:

• the company and its Holding Entity (and other companies in the same corporate group relying on the relief) enter into a deed cross guaranteeing each others debts;

• the Holding Entity lodges a consolidated financial report covering at least those group companies relying on the relief; and

• the other conditions of [CO 98/1418] are satisfied.

Removal of compliance history requirement

Paragraph (p) of the First Order of [CO 98/1418] has the effect that a company must have substantially satisfied certain its financial reporting obligations under Chapter 2M of the Act in the three years prior to the first financial year in which the company took advantage of the relief and since that time.

We have removed this requirement. ASIC does, however, have a new discretion to exclude a company from relying on relief available under the class order. That discretion may be exercised where, for example, we have particular concerns about financial reports of the Holding Entity.

Changes to notice requirements (Form 389)

Paragraph (k) of the First Order of [CO 98/1418] requires a company relying on the relief to lodge with ASIC a notice of reliance on the class order each year, including information on the parties to the deed of cross guarantee. Notification is given by lodging Form 389 with us. We have changed this requirement so that the form need only be lodged in two scenarios:

• where the company did not take advantage of relief available under the class order in the immediately preceding financial year; or

• the Holding Entity of the company changes.

Changes to Form 389 to reflect the new lodgement requirements will be made shortly. In the meantime, you can still use the existing version of Form 389.

If the company ceases to rely on the relief available under the class order, it will need to lodge an opt-out form (Form 399) with ASIC unless it lodges a financial report for that year. Form 399 will be available on ASIC’s website shortly.

We have become aware that a significant number of companies that have sought to rely on [CO 98/1418] have not lodged Form 389, or have lodged the form late. Given the removal of the annual notification requirement, we have decided that in certain circumstances we won’t take action in relation to such non-lodgement or late lodgement in the past.

Prior to the latest changes to the class order, a company that failed to lodge a Form 389 within four months of the end of a financial year was unable to rely on the relief set out in [CO 98/1418] for the relevant financial year. This meant that the company had an obligation to lodge a financial report for that financial year. Further, the company could not rely on the relief in relation to future financial years as the requirement for a good three year compliance history was not satisfied.

In circumstances where a company has sought to rely on [CO 98/1418] in respect of a financial year ending on or prior to the date that the amendments to the class order became effective (ie 31 March 2008) but has not lodged a Form 389 within four months of the end of that financial year [1], we do not intend to require the company to lodge its financial report or otherwise take action in relation to that failure to lodge.

Our intention applies only where for the financial year in question:

• the Holding Entity has lodged consolidated financial statements for that financial year within the time period required by the Act which comply with the Act and cover the company;

• an effective deed of cross-guarantee was in place between the company and the holding entity; and

• the conditions of [CO 98/1498] are otherwise complied with (except where paragraph (p) cannot be satisfied due to past failure to lodge a Form 389); and

• the company has lodged or lodges a Form 389 in respect of at least one financial year.

To take advantage of the no action position, a company that has never lodged a Form 389 may do so by 30 June 2008.

The no action position is strictly limited to the circumstances outlined above and ASIC may take action in relation to other failures to comply with Chapter 2M of the Act, including as a result of other failures to comply with the conditions of relief set out in [CO 98/1418]. Our no action position does not preclude third parties from taking legal action for breaches of the Act arising from failure to comply with [CO 98/1418]. We do not represent that no contravention of the Act has occurred where a Form 389 has not been lodged nor do we undertake to intervene in an action brought by third parties concerning such conduct.

It is unnecessary for a company to seek individual confirmation of our no action position if the company’s circumstances fall within the scope of our no action decision.

Companies that have fully complied with the requirement to lodge an annual Form 389 in the past are not required to take any action. They can cease lodging the form for future years, but are required to lodge an opt-out form when they cease to take advantage of the relief or if their Holding Company changes.

Other changes to [CO 98/1418]

ASIC has made other some other changes to [CO 98/1418]. For example, when initially relying on relief under the class order:

• previously at least two directors of the company needed to sign the solvency statement required by paragraph (o)(i) of the class order and the statement needed to be lodged with ASIC. Now only one director needs to sign this statement and it does not need to be lodged with ASIC.

• paragraph (o)(iii) of the class order required evidence that the company is entitled to the benefit of relief to be provided to ASIC in the form of a statutory declaration. This requirement has been removed.

• previously, to initially qualify for relief, a lawyer or auditor needed to certify that none of the company’s audit reports for the previous three years were qualified. We have removed this requirement. However, other certification requirements remain relating to the form of the deed and its execution.

Please refer to the editorial notes to the class order and the pro forma deeds for an up to date explanation of all the requirements for relief under the class order. You can find these editorial notes and other updated documents relating to the class order on our website.

Class Order [CO 08/15]

Disclosing entities are required to prepare and lodge financial reports for each half-year and full financial year. We have previously given case-by-case relief from preparing and lodging half-year reports to entities with a financial year of eight months or less. Relief for first financial years of eight months or less is now available under CO 08/15. This will save entities that can rely on CO 08/15 the cost of making individual applications for relief.

1. Or in the case of a financial year commencing from 1 January 2005 to 31 December 2005, 5 months

End of release

Download Class Order [CO 08/15]

More information on updated documents relating to the class order