- Bodies regulated by the Australian Prudential Regulation Authority (APRA) are no longer able to avail themselves of the relief and need to be removed from existing deeds of cross guarantee, to the extent the relief is to be relied upon 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.
- The new ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 applies in relation to a financial year ending on or after 1 January 2017. The old ASIC Class Order [CO 98/1418] (Class Order 98/1418) continues to apply, despite its repeal, in relation to a financial year ending before 1 January 2017.
Class Order 98/1418 remade as ASIC Instrument 2016/785
On 28 September 2016, the Australian Securities and Investments Commission (ASIC) remade its financial reporting relief for wholly-owned companies as 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 and 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 the context of 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 three matters to highlight relating to the remade ASIC Instrument:
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).
This change reflects APRA’s view that prudentially regulated companies should not be parties to deeds of cross guarantee because there may be adverse prudential impacts if one or more entities in the group get into financial difficulty.
This change is not expected to have a widespread impact in practice as APRA-regulated companies have not generally been included in an extended group, however we anticipate that some APRA-regulated companies or groups will likely need to amend their existing deeds. 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.
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.
Groups seeking to join new companies should bear in mind that the group’s financing arrangements may require the consent or approval of its financiers to any variation of the pre-existing deed of cross guarantee or the entry into a new deed of cross guarantee.
Transition and effective dates
While it commenced on 29 September 2016, the Instrument will apply in relation to a financial year ending on or after 1 January 2017.
In order to preserve the effect of Class Order 98/1418 beyond the sunsetting date of 1 October 2016, the Instrument includes a transitional provision that extends its effective date. This means that, despite its repeal, Class Order 98/1418 will continue to apply in relation to financial years ending before 1 January 2017.
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.