- In October 2017, ASIC repealed ASIC Class Order 98/1418 (Class Order 98/1418), which provided financial reporting relief for wholly-owned companies within a group where the members of the group are party to a deed of cross guarantee in the form of ASIC Pro Forma 24. The Class Order has been replaced by ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (Instrument) (which applies to financial years ending on or after 1 January 2017).
- Bodies regulated by the Australian Prudential Regulation Authority (APRA) are no longer able to rely on the relief and need to be removed from existing deeds of cross guarantee, to the extent the relief is to be relied upon (for any entity) in respect of financial years ending on or after 1 January 2017.
- Except as noted above, existing deeds of cross guarantee will continue to be compliant until a new company needs to be added – at which time the existing deed will need to be varied, or a new deed entered into, to reflect changes made to the ASIC Pro-forma 24 Deed of cross guarantee.
Part 2M.3 of the Corporations Act requires companies (except most small proprietary companies), disclosing entities and registered managed investment schemes to prepare and lodge a financial report, directors’ report and auditor’s report for a financial year.
The old ASIC Class Order [CO 98/1418] (Class Order 98/1418) relieved a wholly owned entity from its obligations under Part 2M.3, provided that it entered into a deed of cross guarantee with its holding entity and other wholly owned entities of the group, and met certain other conditions.
Class Order 98/1418 remade as ASIC Instrument 2016/785
On 28 September 2016, the Australian Securities and Investments Commission (ASIC) replaced Class Order 98/1418 with ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (Instrument).
The Instrument replaced Class Order 98/1418 before it was due to sunset under the Legislation Act 2003.
ASIC has also released updated versions of the following documents:
- Pro Forma 24 Deed of cross guarantee
- Pro Forma 25 Notice of disposal
- Pro Forma 26 Revocation deed
- Pro Forma 27 Assumption deed
- Information Sheet 24 Deeds of cross-guarantee
The Instrument continues to relieve wholly-owned companies that would otherwise be required to comply with the financial reporting obligations in Part 2M.3 of the Corporations Act from the requirement to prepare and lodge a financial report, directors’ report and auditor’s report, provided the company enters into a deed of cross guarantee and meets certain other conditions.
In relation to wholly-owned groups, the relief recognises the information needs of creditors and other stakeholders can be sufficiently met by the consolidated financial statements for the group, rather than individual financial statements for each of the wholly-owned companies.
There are two matters to highlight relating to the remade ASIC Instrument:
- APRA-regulated companies
The main change to CO 98/1418 in the remaking as the Instrument is around the inclusion of APRA regulated companies in the deed of cross guarantee.
Under the remade Instrument, APRA-regulated companies may no longer obtain relief from the financial reporting obligations under Part 2M.3.
A consequence of this change is that APRA-regulated companies can no longer remain parties to the deed of cross guarantee (including in the capacity as a ‘holding entity’). APRA regulates banks, building societies and credit unions (authorised deposit-taking institutions), life and general insurance and reinsurance companies, friendly societies and superannuation funds (excluding self-managed funds).
Groups who are currently subject to deeds of cross guarantee should review them to ensure any APRA-regulated companies are removed to the extent the relief is to be relied upon in respect of financial years ending on or after 1 January 2017.
Financial reporting relief will cease to apply for all companies that are a party to the deed of cross guarantee if APRA-regulated companies are not removed.
- Effect on existing deeds of cross guarantee
Subject to the above, no changes or updates will be required to existing deeds of cross guarantee for companies that previously obtained relief under Class Order 98/1418 and will continue to do so under the Instrument.
ASIC has also made minor wording changes to the related Pro Formas. However, minor amendments to the updated ASIC Pro Forma 24 mean that in order to join a new company to an existing deed of cross guarantee (executed before 28 September 2016) and obtain relief in respect of a financial year ending on or after 1 January 2017:
- A new deed of cross guarantee will be required to be executed; or
- The pre-existing deed of cross guarantee varied to reflect the revised ASIC Pro Forma 24.
While it commenced on 29 September 2016, the Instrument applies in relation to a financial year ending on or after 1 January 2017.
Updating references to Class Order 98/1418 & consent from financiers
Companies should ensure references in any financial reports or directors’ resolutions to Class Order 98/1418 are updated as appropriate in relation to reporting periods ending on or after 1 January 2017.
Groups should also check whether they need to obtain consent or approval from financiers for an amendment to pre-existing deeds of cross guarantee or the entry into new deeds of cross guarantee.
For more information please contact the author, Emma Cook.
This article was written by Emma Cook, Special Counsel, Matthew Reynolds, Partner and Cameron Jorss, Partner.