ASIC CLASS ORDER [CO 06/106]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

Subsections  341(1), 741(1) and  1020F(1) — Variations

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.

Subsections 741(1) and 1020F(1) of the Act provide that ASIC may make an order exempting a person from a provision of Chapter 6D (fundraising) or Part 7.9 (financial product disclosure and other provisions relating to issue, sale and purchase of financial products) of the Act or declare that the Chapter 6D or Part 7.9 applies as if specified provisions were omitted, modified or varied as specified in the declaration.

1. Background - amendments to Class Order [CO 01/1455] “Continuously quoted securities”

The Act permits a disclosing entity to issue a prospectus or Product Disclosure Statement (PDS) with a specified limited content (“transaction-specific disclosure”) for continuously quoted securities: ss.713 and 1013FA.  Transaction-specific disclosure is predicated on the fact that such entities are subject to the continuous disclosure requirements of the Act and that the market generally should have all information necessary to reach an informed view about those securities.

Section 9 of the Act defines “continuously quoted securities” and excludes the securities of an entity where that entity, its directors or auditor have taken advantage of relief under ss.340 or 341 from the financial reporting and audit requirements of Chapter 2M in the 12 months before the date of the prospectus or PDS.  Hence, an entity is not permitted to use transaction-specific disclosures where the entity, its directors or auditor have taken advantage of relief under ss.340 or 341.

Class Order [CO 01/1455] “Continuously quoted securities” allows an entity to use transaction-specific disclosures even where the entity, its directors and/or auditor has taken advantage of certain ASIC relief under ss.340 or 341 that:

(a) is minor and technical; or

(b) otherwise does not detract from the level of information available to the market.

On 17 February 2006, ASIC made Class Order [CO 06/105] “Calculation of director and executive remuneration” under s.341(1) allows listed companies to measure information on remuneration of individual directors and executives required to be disclosed in the financial report under accounting standard AASB 124 “Related Party Disclosures” and in the directors’ report under s.300A of the Act on a common basis for financial years ending 31 December 2005 to 31 March 2006 inclusive.  As there is no measurement basis in AASB 124, relief on measurement in relation to that standard is for the avoidance of doubt only.

The relief provided by [CO 06/105] is considered minor and technical as it only removes doubt that companies are able to use a common measurement basis for both sets of disclosures.  It allows a company to use one of the measurement bases specified in the class order.  [CO 06/105] does not remove the requirement to disclose the remuneration information within an annual report.

2. Background - amendments to Class Order [CO 04/672] “Extension of on-sales exemptions”

The Act requires an entity to issue a prospectus or PDS where the entity is on-selling a financial product within 12 months of that product being issued and:

(a) there was no disclosure at the time of issue; and

(b) certain other criteria are satisfied as outlined in ss.707(3) and 1012C(6).

There are a number of exemptions to the requirements in ss.707(3) and 1012C(6).  In particular, ss.708A(5) and 1012DA(5), the “on-sale exemptions”, recognise that a prospectus or PDS need not accompany the on-sale of a financial product that is quoted on an Australian financial market provided, amongst other things, the on-selling entity, its directors and auditor are not relying on any relief granted in the 12 months prior to the issue of the product under ss.340 or 341.

Class Order [CO 04/672] “Extension of on-sales exemptions” allows an entity to rely on the on-sale exemptions even where the entity, its directors and/or auditor has taken advantage of certain ASIC relief under ss.340 or 341 that:

(a) is minor and technical; or

(b) otherwise does not detract from the level of information available to the market.

As stated above, ASIC Class Order [CO 06/105] does not reduce the amount increase the information available in financial reports and ensures that certain financial reporting requirements of the legislation operate in an effective manner.

As a result, [CO 04/672] now needs a minor amendment in order to permit an entity to rely on the on-sale exemptions despite its auditor having relied on the technical relief provided by [CO 06/105].

3. Class Order [05/637] “Additional month for first financial reports under AIFRS”

Class Order [CO 05/637] “Additional month for first financial reports under AIFRS” applies to the first financial reports prepared under the Australian equivalents of International Financial Reporting Standards (AIFRS) by most unlisted entities and individuals.  [CO 05/637] allows an additional month for those entities and individuals to distribute those financial reports to members and to lodge those financial reports with ASIC.

The relief applies to financial reports under both Chapter 2M and Chapter 7 of the Corporations Act and for half-years and financial years commencing from 1 January 2005 to 31 December 2005 inclusive.

The order contained a minor error in referring to the relevant provisions of s.315 of the Act.

4. Class Order [CO 06/106] “Variation and revocation of financial reporting class orders”

Class Order [CO 06/106] “Variation and revocation of financial reporting class orders”:

(a) varies [CO 01/1455] to permit an entity that has taken advantage of the relief under Class Order [CO 06/105] to rely on transaction specific disclosure;

(b) varies [CO 04/672] to permit an entity that has taken advantage of the relief under Class Order [CO 06/105] to take advantage of disclosure exemptions for secondary sales of securities and financial products;  and

(c) varies [CO 05/637] to correct a minor referencing error.

5.  Consultation

As [CO 06/106] is of a minor or machinery nature and does not substantially alter existing arrangements, ASIC did not undertake any consultation with stakeholders before that class order was made.