ASIC has today released a consultation paper on relief for externally administered companies and registered schemes being wound up.

ASIC Commissioner, John Price said, ‘We want public comments on our proposals to reduce business costs for insolvent or financially distressed companies and registered schemes while recognising the information needs of members and creditors of financially distressed entities. ASIC also wants to ensure that companies that cease being externally administered comply with their financial reporting obligations if they are going to continue to carry on business'.

Key points from Consultation Paper 223 Relief for externally administered companies and registered schemes being wound up—RG 174 update (CP 223):

• ASIC proposes to update its approach to financial reporting relief for externally administered companies and registered schemes being wound up.

• We want to establish policy settings that appropriately balance the information needs of members and other users of financial reports with the financial burden imposed on distressed entities by financial reporting costs.

• ASIC is consulting on some possible practical improvements we can make to our policy to test whether they will achieve that appropriate balance.

In particular, we are consulting on proposals whether we should:

• expand our policy to exempt insolvent registered schemes being wound up from financial reporting

• expand our policy to exempt public companies from the obligation to hold an AGM if the company has a liquidator appointed, and

• update our guidance on the circumstances in which we will provide individual relief, including narrowing the circumstances in which we give exemptive relief and expanding the circumstances in which we give deferral relief.

Mr Price said, ‘Given that external administrations of companies and the winding up of registered schemes raise competing policy issues, we have prepared a detailed consultation paper to assist companies, members, Australian financial services licensees (including responsible entities), creditors and insolvency practitioners in providing their feedback. We welcome submissions from interested parties and hope to finalise our revised regulatory guide and class order in early 2015'.

Submissions close 20 October 2014.

Download CP 223 (and the attached draft Regulatory Guide 174)

Background

Regulatory Guide 174 Externally administered companies: Financial reporting and AGMs (RG 174) sets out our guidance on how we exercise our discretionary powers under the Corporations Act to:

• give class order and individual relief to externally administered companies from some or all of the financial reporting obligations, and

• extend the time in which an externally administered public company must hold an AGM.

Under this policy, ASIC provides two broad types of relief:

• exemptions – where financial reporting obligations are cancelled (e.g. we provide class order exemptions to companies that have a liquidator appointed), and

• deferrals – where financial reporting obligations are deferred and so must be complied with at a later date (e.g. we provide conditional deferral relief for six months for companies entering into voluntary administration).

In developing our policy we want to:

• find an appropriate balance between the interests of members (and other users of financial reports) and the impact on creditors who will pay the costs in preparing financial reports

• ensure that unreasonable financial burdens are not imposed on insolvent externally administered companies or registered schemes that will cease carrying on business and ultimately be deregistered

• have financial reports prepared and lodged by companies and registered schemes carrying on a business, including those that have ceased being under external administration or in wind up, and

• require external administrators to provide public information about administrations, including periodic statements of their receipts and payments and minutes of creditors' meetings.

Since issuing RG 174 in 2003, a large number of externally administered companies have relied on the relevant class order that provides relief, ASIC Class Order [CO 03/392] Externally administered companies: Financial reporting relief. In addition, ASIC has provided individual relief instruments in situations not covered by the class order where applicants are otherwise able to meet our policy settings under RG 174.

Since June 2003, there have been a number of relevant legislative amendments to the Corporations Act, most significantly the introduction of a power for ASIC to exempt public companies from holding an AGM. We also note that [CO 03/392] will 'sunset’ – that is, expire – unless it is remade before 1 April 2017.

In light of our experience in administering our policy, the legislative changes and the fact our relief will expire, ASIC undertook a project to review RG 174 and [CO 03/392]. We identified that our policy does not cover a range of topics on which we could provide relief and further guidance. We have also identified some areas where improvements can be made to the administration of our policy. These include instances where applications for individual exemptions have incorrectly applied the concept of whether there is an ‘ongoing economic interest’ in the distressed company.

Download:

RG 174

[CO 03/392]