It is common that large corporate groups seek to take advantage of relief provided by ASIC to reduce both the regulatory compliance burden and the cost burden of managing a large group by relieving certain wholly-owned subsidiaries from the requirement to prepare and lodge financial statements.
WHEN IS THE LODGMENT DEADLINE?
It is important that if you are considering applying for relief, that you start the process early to ensure that all of the lodgments are done before the lodgment deadline.
For companies with a financial year which ends on:
- 31 December of each year: Your documents must be lodged with ASIC prior to 31 December 2015.
- 30 June of each year: Your documents must lodge your documents prior to 30 June 2016.
WHICH ENTITIES WITHIN A CORPORATE GROUP ARE ELIGIBLE?
If your corporate group consists of:
- public companies limited by shares;
- public companies limited by guarantee; or
- large proprietary companies (subject to certain exemptions),
and where the entities are not controlled by a foreign company and are wholly owned by a parent entity, your group may be eligible to apply for relief under ASIC Class Order 98/1418 (ASIC Class Order).
WHAT IS THE BENEFIT OF THE RELIEF?
The ASIC Class Order is designed to provide relief to wholly-owned entities from preparing and lodging financial accounts. This is achieved by a deed of cross guarantee between a parent company and one or more of its wholly-owned subsidiaries.
Further, the liabilities of an entity may be satisfied by using the “group resources” rather than just the resources of the company itself.
DISADVANTAGES OF APPLYING FOR RELIEF?
Each entity within the group must consider whether or not it is in the best interests of that entity to be a party to the deed.
Because the deed of cross-guarantee results in a parent company and its subsidiaries as being recognised as a single legal entity, liability is no longer limited to the individual subsidiaries themselves, and in some instances creditors will have rights to the assets of the parent company and other subsidiaries in an event of insolvency.
It is therefore imperative that corporate groups only execute a deed cross guarantee when they are confident that an insolvency event will not occur and that they “opt out” (using the specific process set out by ASIC) if they believe one has the potential to arise.
WHAT HAPPENS IF A STEP IS MISSED?
In ASIC's view, a failure to satisfy any of the conditions of the relief for a financial year means that the subsidiary cannot take advantage of the relief for that financial year.
If documents are not lodged, not executed correctly, contain errors in respect of parties names or ACNs etc, there is a risk that the company cannot not rely on the Class Order relief for the relevant year and possibly for relief for future financial years, and would need to lodge individual statutory accounts for that financial year.
This can be an expensive exercise and one which will usually only be discovered after the deadline for the subsidiary to lodge individual statutory accounts will also have passed.
CHECK LIST FOR APPLYING FOR RELIEF?
In order to rely upon ASIC Class Order 98/1418, the following will need to be satisfied:
- There is a correctly executed and certified deed of cross guarantee in the form of the relevant proforma deed (PF 24)? (Note: it is important to check ACNs, names of companies that a party to the deed etc. to ensure they are correct, that an alternative trustee is named and that only wholly owned entities are part of the closed group and party to the deed).
- The documents have been certified by a legal practitioner with a current practising certificate?
- Have solvency statements been prepared for the entities and do they reference the deed and each of the parties to the deed?
- Have the documents been lodged with ASIC on time (before 31 December or before 30 June)?
- Have the wholly owned entities each lodged an “opt-in” notice within four months of the end of the first financial year that relief is required?