Issued 7 September 2023
This guide sets out the financial requirements you must meet as the holder of an Australian financial services (AFS) licence. The requirements vary depending on the financial products and services you offer.
If you are a body regulated by the Australian Prudential Regulation Authority (APRA), as defined in s3(2) of the Australian Prudential Regulation Authority Act 1998 (APRA Act), and are not required to comply with s912A(1)(d) of the Corporations Act 2001 (Corporations Act), this guide does not apply to you.
Download RG 166 (PDF 1.4 MB)
Deed of Subordination and Deed of Mutual Release
A licensee uses a Deed of Subordination where it wishes to adjust its liabilities in order to meet certain financial obligations under its AFS licence.
Subordinating a loan
To subordinate a loan a licensee must:
- provide a PDF copy of the Deed of Subordination, executed by the debtor and the lender, and email it to ASIC for dating and execution. The Deed must be substantially in the form of ASIC Pro Forma 63 Deed of subordination (PF 63)
- demonstrate that it will comply, or continue to comply, with its financial obligations after the loan has been subordinated – i.e., provide a current balance sheet not more than 3 months old and calculations of all relevant financial requirements that apply to the licensee under RG 166 (e.g., NTA calculation, surplus liquid funds calculation, adjusted surplus liquid funds calculation), signed by a director
- provide a brief covering email outlining the purpose of the Deed and requesting ASIC to date and execute the Deed.
- if the borrower or lender is a foreign company – provide an extract from the relevant company register in the country of registration, showing the office holders of the company and confirmation the Deed has been executed in accordance with the laws of that country; and
- provide confirmation of whether the total principal sum under the Deed has been advanced to the borrower. (Note: If the funds have not been advanced at the time of submitting the Deed, ASIC will seek confirmation of this prior to ASIC executing the Deed).
Releasing a subordinated loan
To release a subordinated loan the licensee must:
- provide a PDF copy of the Deed of Mutual Release executed by the debtor and lender, and email it to ASIC for dating and execution. The Deed must be substantially in the form of Pro Forma 225 Deed of Mutual Release: Information to release a Deed of Subordination (PF 225)
- demonstrate that it will continue to comply with its financial obligations after the loan has been repaid – i.e., provide a balance sheet and calculations of all relevant financial requirements that apply to the licensee under RG166 (e.g. NTA calculation, surplus liquid funds calculation, adjusted surplus liquid funds calculation), signed by a director; and
- Provide a brief covering email requesting ASIC's consent to repay the loan and requesting ASIC to date and execute the Deed.
The Deed(s) and supporting documents for subordinating a loan or releasing a subordinated loan must be submitted electronically via email unless otherwise advised by ASIC.
Submit via email to: afslicensing@asic.gov.au.
Frequently asked questions
Can the same individual sign as director of both the debtor and the lender?
Yes. The individual is able to exercise their powers in respect to separate legal entities.
Can ASIC execute a Deed of Subordination where there is no loan in place?
The Deed contemplates (see Clause 2 of the Deed) that the Lender may have only agreed to advance the loan under the Deed so this does not prohibit the borrower or lender executing a deed before a loan exists. However, ASIC will require proof that the Lender has advanced the entire principal sum to the borrower prior to ASIC executing the Deed.
Can a licensee repay part of the loan or make adjustments to the amount of the loan at any time?
Yes, but generally the licensee and its lender/s will need to complete a Deed of Mutual Release and a new Deed of Subordination as a replacement to the previous Deed.
Can there be more than one lender on a Deed of Subordination?
ASIC's preferred approach is for a separate Deed for each lender, to provide clarity about identification of the loan, obligations under the deed, order of repayment etc.
If the term of a loan in the schedule expires, can the licensee continue to rely on the Deed for the purpose of meeting the relevant financial obligation?
The licensee and lender/s, with ASIC approval will need to discharge such Deeds; and, if necessary, replacement deeds submitted for ASIC approval.
A lender wishes to demand or commence proceedings for repayment or recovery of the whole or any part of the Subordinated Debt; does the lender need to do anything?
Yes. The lender must request ASIC's consent in writing prior to making any attempt to recover all or any part of the loan. Generally, ASIC will consent if it is satisfied that the conditions outlined at paragraph 5.3 in the Deed of Subordination have been met.
What form should the deed be submitted in?
The Deed should be submitted as a PDF. ASIC accepts Deeds that are either digitally signed using a recognised electronic signature platform (e.g. DocuSign) or physically signed and then scanned to PDF. It is not necessary to submit original hard copies unless specifically requested.
Does ASIC require original hard copies of the Deed?
No. All deeds and supporting documents should be submitted electronically via email unless ASIC advises otherwise.
