ASIC has issued a new regulatory instrument extending the deferral period for lodgement of financial reports and holding a company’s annual general meeting (AGM) for certain companies in external administration.
Obligations relating to financial reports and AGMs
Companies which are in external administration continue to be subject to the requirements under the Corporations Act 2001 (Cth) (the Act) to:
- prepare annual financial reports and directors’ reports, audits and disclosures, as well as half-year financial reports and directors’ reports (for certain companies) under Part 2M.3 of the Act; and
- for public companies, to hold AGMs each calendar year within 5 months after its financial year, pursuant to section s250N of the Act, (the Statutory Obligations).
However, the Statutory Obligations are subject to the relief granted by ASIC pursuant to the ASIC Corporations (Externally-Administered Bodies) Instrument 2015/251 (the ASIC Relief Instrument).
The previous deferral regime for companies in Relevant External Administrations
Previously, the ASIC Relief Instrument provided that the Statutory Obligations of a company were deferred for 6 months from the date of the first appointment of an administrator, controller or provisional liquidator (a Relevant External Administrator), provided that the conditions of relief were satisfied.
If relief was required beyond that six month period, the Relevant External Administrator would need to apply to ASIC for an extension under section 342(1)(c) of the Act on the basis that compliance with the Statutory Obligations would impose unreasonable burdens.
New deferral regime for companies in Relevant External Administrations
On 6 October 2021, ASIC updated its regulatory relief for companies in respect of which Relevant External Administrators have been appointed (companies subject to Relevant External Administrations). This was designed to reduce red tape and provide certainty.
This new relief was introduced by way of ASIC Corporations (Amendment) Instrument 2021/506 which amended the ASIC Relief Instrument.
ASIC also updated its Regulatory Guide 174 – Relief for externally administered companies and registered schemes being wound up (RG 174) explaining the relief regime applicable to companies in Relevant External Administration, subject to a deed of company arrangement (DOCA) or in liquidation (together, External Administration).
The changes to the deferral regime do not apply to companies in liquidation, which continue to receive full exemptions from compliance with financial reporting requirements and requirements to hold an AGM pursuant to sections 5 and 6 of the ASIC Relief Instrument.
Operation of the new deferral regime
Under section 8 in the ASIC Relief Instrument, the deferral of the preparation and lodgement of financial reports for companies Relevant External Administration has now been extended for a minimum period of six months and a maximum period of 24 months, depending on the circumstances of the company (the deferral period), provided that the conditions of relief are satisfied (and subject to the exclusion of certain companies from this regime).
Where a company ceases to be subject to any External Administration prior to the end of the initial six month period, the deferral period commences on the appointment of the Relevant External Administrator and ends six months from that date.
Where a company continues to be subject to External Administration after the initial six month period, the deferral period commences on the appointment of the Relevant External Administrator and ends on the earlier of:
- 24 months from that date;
- where a deed administrator is appointed following the appointment of the Relevant External Administrator, the day on which a director of the company has the right to or is able to perform or exercise all or most of the management powers or functions of a director of the company under the DOCA or with the consent of the deed administrator; or
- the day on which the External Administration of the company ends.
The conditions of the relief under section 8(3) of the ASIC Relief Instrument require companies to give notice in relation to the reliance on the deferral period to the relevant market operators (if listed), give notice on websites maintained by the company and the Relevant External Administrator and have adequate arrangements in place to answer any reasonable questions asked by a member about the relevant external administration.
Separately, this deferral period for financial reports has been accompanied by the introduction, under section 6A in the ASIC Relief Instrument, of an extension of time by which any public company subject to Relevant External Administration would be required to hold an AGM to be two months after the end of the deferral period. The same conditions apply to the deferral of the AGM under section 6A(3) in the ASIC Relief Instrument.
Reasons for the change
ASIC undertook public consultation of the new deferral regime in January 2021 in its Consultation Paper 337 – Externally administered companies: Extending financial reporting and AGM relief (CP 337). The proposal of the new deferral regime reflected the applications ASIC received to extend the deferral relief beyond the previous six month period. In almost all cases, these applications were approved, and a majority of these were for deferrals of up to 24 months. Where the application for an extension of the deferral relief was made by a public company, it was usually accompanied by an application to defer the AGM requirements.
By extending the time for compliance with these requirements, the new deferral regime aims to strike a balance between the cost and regulatory burden for companies subject to Relevant External Administrations while protecting the information needs of stakeholders that use and benefit from a company’s financial reports.
The responses from the public consultation were considered in Report 703 – Response to submissions on CP 337 Externally administered companies: Extending financial reporting and AGM relief (REP 703) and were generally supportive of the new deferral regime.