With the end of the financial year fast approaching, many company directors (and their accountants!) are feeling the pressure of their financial reporting obligations.

Many public companies, large proprietary companies and certain small proprietary companies should start thinking about whether they will avail themselves of the financial reporting relief offered by the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (ASIC Instrument).

But companies which have a year ending on 30 June had better get cracking, as the relevant documents must be lodged with ASIC no later than by 30 June 2021 to obtain the relief for the current year. 

Relief provided under the ASIC Instrument

Under the ASIC Instrument, a corporate group may reduce the burden of financial reporting by entering into a deed of cross guarantee.

The deed of cross guarantee must be in the approved form between the holding (parent) entity and its wholly-owned entities, and the required notices and documents must be lodged with the Australian Securities and Investments Commission (ASIC).  If all conditions of the ASIC Instrument are met, the holding (parent) entity and its wholly-owned entities will be treated as a single legal entity for financial reporting purposes and will be able to prepare consolidated financial reports to meet their reporting obligations under Chapter 2M.3 of the Corporations Act 2001 (Cth) (the Act).

What a relief! Right?

possible DisadvantageS of the relief provided under the ASIC Instrument

In the usual way, the benefits of relief need to be weighed against the potential disadvantages.  Before each member of a corporate group enters into a deed of cross guarantee in order to obtain relief from financial reporting, it is important for the directors of each company to consider whether it is in the best interests of that company.  For example there may be a risk to the assets of that company if a claim is made against another member of the corporate group which is party to the deed of cross guarantee.

While there is a process available for members of the corporate group who are no longer eligible for relief under the ASIC Instrument to be removed from their obligations as guarantors, this process does take time and costs.

Upcoming Deadline

For corporate groups which have not yet entered into a deed of cross guarantee and wish to do so, it is crucial that certain documents including the deed of cross guarantee and a solicitor's certificate are lodged in hardcopy with ASIC on or before the end of the first financial year for which the relief is first sought.  

For those companies which have a year ending on 30 June, this means that the relevant documents must be lodged with ASIC no later than by 30 June 2021 to obtain the relief for the current year. 

Otherwise, ASIC will consider that relief has not been granted and all wholly-owned entities will be required to lodge individual financial and director reports, rather than relying on consolidated group accounts.

If you require any advice or assistance regarding the relief offered under the ASIC Instrument or any of your other obligations under the Act, please contact our Commercial Team.

The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

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