ASIC CLASS ORDER [CO 08/15]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 08/15] under section 341 of the Corporations Act 2001 (the Act).
Section 341 provides that ASIC may make an order in writing in respect of a specified class of companies, registered schemes or disclosing entities, relieving any of the following persons from all or specified requirements of Parts 2M.2, 2M.3 and 2M.4 (other than Division 4) of the Act:
(a) directors;
(b) the companies, registered schemes or disclosing entities themselves;
(c) auditors of the companies, registered schemes or disclosing entities.
1. Background
Part 2M.3 of the Act requires disclosing entities to prepare and lodge audited financial reports for each half-year and each financial year. These reports are known respectively as half-year financial reports and annual financial reports.
Under section 323D the first financial year of an entity can be any period of no longer that 18 months from the day the entity is registered, and the first half-year is the first 6 months of that year.
Where a disclosing entity has a short financial year of only a few months, it may be required by the Act to prepare and lodge a half-year financial report and an annual financial report in quick succession.
ASIC recognises that it is inappropriate and an unreasonable burden to expect an entity with a half-year which ends two months or less before the financial year end to prepare and lodge a half-year financial report. ASIC have previously given case-by-case relief under section 340 of the Act to relieve entities from the requirement to prepare and lodge half-year financial reports in such circumstances.
2. Purpose of the class order
The purpose of the class order is to remove the need for case-by-case relief in respect of short first financial years of disclosing entities.
3. Operation of the class order
Under the terms of the class order any disclosing entity with a first financial year of 8 months or less is relieved from the requirement to prepare and lodge a half-year financial report and directors' report for that financial year on condition that:
(a) the disclosing entity informs the market (in the case of a listed disclosing entity) or ASIC (in the case of an unlisted disclosing entity) that the entity intends to rely on the relief under the class order ; and
(b) the directors’ report for the first financial year states that the entity relied on the relief under the class order and explains the effect of the relief.
4. Consultation
ASIC consulted with ASX Limited (ASX). Under the ASX Listing Rules, a listed disclosing entity must give ASX a copy of the half-year financial report required to be lodged with ASIC. The ASX did not object to the class order.
ASIC did not consult with other outside parties as the relief in the class order is considered to be of a minor or machinery nature.
Overview
ASIC Class Order [CO 08/15] was introduced in 2008 by the Australian Securities and Investments Commission (ASIC) under section 341 of the Corporations Act 2001. This legislative instrument aims to address the burden placed on disclosing entities with a short first financial year, particularly those with a duration of eight months or less, by relieving them from the requirement to prepare and lodge half-year financial reports. The purpose of this class order is to streamline the regulatory process by removing the need for case-by-case relief, thereby alleviating an unreasonable burden on these entities. To avail of this relief, the disclosing entity must inform either the market or ASIC of their intention to rely on the class order and provide a statement in their directors' report explaining the effect of the relief. ASIC consulted with ASX Limited, which did not object to the class order, and deemed further consultation with other parties unnecessary due to the minor nature of the relief provided.
Scope and Application
ASIC Class Order [CO 08/15] applies to disclosing entities, including companies and registered schemes, with a first financial year of eight months or less. This order, made under the Corporations Act 2001, seeks to relieve such entities from the requirement to prepare and lodge half-year financial reports and directors' reports for that financial year. The order applies across Australia, given its Commonwealth jurisdiction. To qualify for the relief, the disclosing entity must inform either the market or ASIC of their intention to rely on the class order and include a statement in the directors’ report explaining the relief's effect. The class order is not applicable to entities with a first financial year exceeding eight months, nor does it extend to other parts of the Corporations Act beyond Parts 2M.2, 2M.3, and 2M.4 (excluding Division 4). ASIC has not identified any exclusions or exemptions within the scope of this class order, which aims to alleviate an undue burden on entities with particularly short financial years. The operation of the class order may be further refined through subordinate instruments if necessary, though none are currently in effect.
Key Provisions
ASIC Class Order [CO 08/15] under the Corporations Act 2001 (section 341) aims to relieve certain entities from specific financial reporting requirements. This class order applies to disclosing entities, particularly those with short financial years, providing them with relief from the need to prepare and lodge half-year financial reports when their first financial year is eight months or less (section 3). The primary objective of this order is to streamline the process by eliminating the need for case-by-case relief, thereby reducing administrative burdens on entities with short financial years (section 2). To qualify for this relief, the entity must inform either the market or ASIC, depending on whether it is listed or unlisted, and include a statement in the directors' report explaining the reliance on the class order (section 3(a) and (b)).
Entities subject to this class order must adhere to specific obligations to avail themselves of the relief. Firstly, the disclosing entity must notify the relevant party, either the market if listed or ASIC if unlisted, of its intention to rely on the class order (section 3(a)). This notification is crucial for transparency and ensures that stakeholders are aware of the entity's decision to forgo certain reporting requirements. Secondly, the directors' report for the first financial year must explicitly state that the entity relied on the class order and explain the effects of this relief (section 3(b)). This requirement ensures that stakeholders understand the implications of the relief on the entity’s financial reporting.
Breaching the conditions set out in the class order can have legal consequences. Although the explanatory statement does not explicitly outline penalties for non-compliance, it is important to note that the Corporations Act 2001 provides for general penalties for non-compliance with financial reporting requirements. These penalties can include substantial fines and, in severe cases, imprisonment for directors. Additionally, entities may face civil consequences such as compensation claims from shareholders or other stakeholders adversely affected by non-compliance. The specific penalties for non-compliance would depend on the nature and extent of the breach, as well as any relevant provisions of the Corporations Act 2001.