ASIC Class Order [CO 98/2016]

Overview

The ASIC Class Order [CO 98/2016], enacted under section 341(1) of the Corporations Act 2001, addresses the transitional compliance issues faced by entities that cease to be disclosing entities before the deadline for lodging financial reports. This legislative instrument is prepared by the Australian Securities and Investments Commission (ASIC) and its objective is to provide relief to such entities from certain disclosure requirements of Chapter 2M of the Corporations Act, provided that the entity complies with the relevant requirements as if it had not been a disclosing entity at the end of its financial year. Additionally, the directors of the entity must resolve that there are no reasons to believe the entity may become a disclosing entity before the end of the next financial year. This Class Order aims to ensure that entities transitioning out of their disclosing status do not face undue burdens in meeting disclosure obligations. The ASIC Class Order [CO 98/2016], as amended by [CO 14/757], provides a structured pathway for entities that cease to be disclosing entities before their reporting deadline. The primary goal of this legislation is to ease the compliance burden on these entities by exempting them from certain disclosure requirements of the Corporations Act, contingent upon specific conditions being met. These conditions include maintaining compliance with the Act as if the entity had not been a disclosing entity and ensuring that the entity's directors have resolved that there is no expectation of reverting to a disclosing entity status in the near future. This approach allows for a more streamlined transition for entities exiting their disclosing entity status, thus supporting regulatory compliance and operational efficiency.

Scope and Application

The ASIC Class Order [CO 98/2016] applies to entities that are disclosing entities under the Corporations Act 2001, but cease to be such entities before the end of a specified period following the conclusion of their financial year. This period is either three months after the end of the financial year or, if the entity is required to hold an annual general meeting, 21 days before the date of the next annual general meeting. The order provides relief to these entities from certain reporting requirements of Chapter 2M of the Act, on the condition that the entity complies with the reporting requirements as if it had not ceased to be a disclosing entity, and the directors resolve that there are no reasons to believe the entity will become a disclosing entity again within the next financial year. The Class Order is made under the authority of s341(1) of the Corporations Act 2001 and is administered by the Australian Securities and Investments Commission. It has been amended by ASIC Class Order [CO 14/757] and this compilation was prepared on 13 August 2014 to reflect these amendments. The ASIC Class Order [CO 98/2016] has a national reach, applying across Australia, and extends to entities subject to the Corporations Act 2001. It specifically targets entities that are disclosing entities but cease to hold that status before a defined deadline. The order excludes entities that fail to meet the conditions for relief, such as those where the directors have not resolved that there are no reasons to believe the entity will become a disclosing entity again. The Class Order is further clarified by noting that certain non-compliances related to auditors and audit companies do not affect the satisfaction of the conditions. The scope and application of the Class Order can be extended or restricted through subordinate instruments, as indicated in the table of instruments and amendments provided in the compilation.

Key Provisions

ASIC Class Order [CO 98/2016] provides relief for entities that cease to be disclosing entities before their compliance deadline, as detailed in subsection 341(1) of the Corporations Act 2001 (the Act). Specifically, it exempts these entities from certain requirements of Chapter 2M of the Act, provided they meet two main conditions. Firstly, they must comply with Chapter 2M as if they had not been disclosing entities at the end of their relevant financial year (Section 1(a)). Secondly, the directors of the entity must resolve before the earlier of the specified dates that there are no reasons to believe the entity will become a disclosing entity within the next financial year (Section 1(b)). This relief is particularly relevant for entities that are no longer subject to the extensive disclosure requirements of Chapter 2M, such as those that have undergone structural changes or reclassification. The obligations imposed by the ASIC Class Order on the entities it governs are relatively straightforward but critical for compliance. The primary obligation is for the directors to make a resolution regarding the entity's status as a disclosing entity. This resolution must be made before the earlier of the end of three months after the financial year or 21 days before the next annual general meeting (AGM) if the entity is required to hold one. Additionally, the entity must ensure it complies with Chapter 2M as if it had not ceased to be a disclosing entity. This means adhering to the disclosure requirements as if the entity had not experienced the change in status. The directors must also ensure that any non-compliance with Chapter 2M is not due to the specified minor issues such as the involvement of an affected auditor instead of a registered company auditor. The consequences of breaching the provisions of the ASIC Class Order [CO 98/2016] can be significant. Although the Class Order itself does not specify penalties, breaches of the Corporations Act 2001 can result in substantial penalties. For example, under the Act, officers and directors can face civil penalty provisions, which may include fines of up to $210,000 for individuals and up to $1.05 million for bodies corporate. Additionally, directors may face disqualification orders, which can prevent them from managing corporations for a specified period. The Act also allows for criminal penalties for more serious breaches, which can result in imprisonment depending on the severity of the offence. These potential penalties underscore the importance of strict compliance with the Act's provisions and the Class Order’s conditions.