ASIC CLASS ORDER [CO 05/0638]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
Subsections 341(1) - Order
Subsections 341(1) of the Corporations Act 2001 (the Act) provides that the Australian Securities and Investments Commission (ASIC) may make an order in respect of a specified class of companies, registered schemes or disclosing entities that relieves the entities in question, their directors and/or auditors from specified requirements of Parts 2M.2, 2M.3 or 2M.4 (other than Division 4) of the Act.
1. Background - grandfathering
Under ss.319(4) to (6) of the Corporations Law (as preserved in the Corporations Act through the transition provision in the table in s.1408(7) of the Act), certain large proprietary companies are not required to lodge financial reports with ASIC if they meet certain conditions. Commonly referred to as “grandfathered” large proprietary companies, these companies are required to have their financial reports audited before the reporting deadlines specified in Chapter 2M of the Act in order to maintain their exemption from lodging financial reports.
2. Background – adoption of AIFRS
Financial reports of companies, registered schemes and disclosing entities under Chapter 2M of the Act will be required to be prepared in accordance with the Australian equivalents of International Financial Reporting Standards ("AIFRS") for the first time for years commencing on or after 1 January 2005.
Class Order [CO 05/0637] “Additional month for first financial reports under AIFRS” pursuant to s.341(1) of the Act allows non-disclosing entities (other than small proprietary companies that prepare financial reports pursuant to a shareholder direction under s.293) an additional month to distribute their financial report for a year commencing from 1 January 2005 to 31 December 2005 (inclusive) to members and lodge it with ASIC.
In the absence of further ASIC relief, “grandfathered” companies that take advantage of [CO 05/637] would not meet a condition for retaining their “grandfathered” status. They would then be required to lodge its financial reports in the year concerned and all future years.
4. Class Order [CO 05/0638] “Anomalies preventing certain large proprietary companies from being grandfathered”
Class Order [CO 05/0638] “Anomalies preventing certain large proprietary companies from being grandfathered” replaces Class Order [CO 98/0099] “Anomalies preventing certain large proprietary companies from being grandfathered”. [CO 05/0638] replicates and continues the relief provided by [CO 98/0099] to allow certain large proprietary companies to retain their "grandfathered" status despite not having met the "grandfathering" conditions in particular circumstances.
In addition, [CO 05/0638] provides minor and machinery relief to allow companies to retain their "grandfathered" status despite taking advantage of ASIC relief providing an additional month to complete their financial reporting obligations for a year commencing from 1 January 2005 to 31 December 2005 inclusive.
5. Consultation
As [CO 05/0638] is minor and machinery in nature, ASIC did not undertake any consultation with stakeholders before that class order was made.
Overview
The ASIC Class Order [CO 05/0638], introduced in 2005, aims to address the problem of anomalies that prevent certain large proprietary companies from retaining their "grandfathered" status, which exempts them from lodging financial reports with ASIC. This Class Order was enacted by the Australian Securities and Investments Commission (ASIC) under subsections 341(1) of the Corporations Act 2001. The policy objective of this Class Order is to provide relief to specified classes of companies, registered schemes, and disclosing entities, allowing them to retain their "grandfathered" status despite not meeting the usual "grandfathering" conditions or taking advantage of ASIC relief for an additional month in completing financial reporting obligations. The Class Order replaces an earlier one, [CO 98/0099], to continue providing this relief. ASIC did not undertake any consultation with stakeholders before enacting this Class Order as it is of a minor and machinery nature.
Scope and Application
The ASIC Class Order [CO 05/0638] applies to certain large proprietary companies that were previously able to retain their "grandfathered" status under the Corporations Act 2001, meaning they were exempt from lodging financial reports with ASIC if they met specific conditions. This class order is designed to continue providing relief to these companies, allowing them to retain their grandfathered status despite anomalies or the use of ASIC relief for an additional month to complete their financial reporting obligations for the period commencing from 1 January 2005 to 31 December 2005. The order is jurisdictional in that it is issued under the authority of the Australian Securities and Investments Commission pursuant to the Corporations Act 2001. It does not apply to small proprietary companies preparing financial reports under a shareholder direction, as these are already subject to different reporting requirements. The order is minor and machinery in nature, and as such, ASIC did not undertake any consultation with stakeholders before it was made.
Key Provisions
The ASIC Class Order [CO 05/0638] addresses specific exemptions and reliefs for certain large proprietary companies under the Corporations Act 2001 (the Act). Section 341(1) of the Act empowers the Australian Securities and Investments Commission (ASIC) to create orders that exempt specified classes of companies, registered schemes, or disclosing entities from certain financial reporting requirements. In this context, [CO 05/0638] extends relief to certain large proprietary companies, allowing them to retain their "grandfathered" status despite not meeting the usual conditions for such status. This status typically exempts these companies from lodging financial reports with ASIC if they satisfy specific criteria, but they must still have their financial reports audited.
The obligations imposed by [CO 05/0638] require large proprietary companies to continue to have their financial reports audited as per the deadlines specified in Chapter 2M of the Act. Furthermore, these companies must ensure that their financial reports comply with the Australian equivalents of International Financial Reporting Standards (AIFRS) for the first time for financial years commencing on or after 1 January 2005. The Class Order ensures that these companies can still be considered "grandfathered" despite taking advantage of the additional month granted by [CO 05/0637] to lodge their financial reports for the year commencing from 1 January 2005 to 31 December 2005.
Failure to comply with the requirements set out in the Class Order can result in significant consequences. Companies that do not retain their "grandfathered" status may be required to lodge their financial reports with ASIC for the year in question and all subsequent years. This could lead to increased compliance burdens and scrutiny. Although [CO 05/0638] is minor and machinery in nature, the implications of losing "grandfathered" status should not be underestimated, as it can significantly alter a company's reporting obligations under the Act.
Given that [CO 05/0638] is minor and machinery in nature, ASIC did not undertake any formal consultation with stakeholders before making this class order. However, the implications of the order are significant for the entities it governs, necessitating careful compliance to avoid the potential loss of "grandfathered" status and the associated financial and administrative burdens.