The Australian Securities and Investment Commission (ASIC) has announced plans to provide regulatory relief for businesses in external administration. This move will see much red tape cut when it comes to fulfilling financial reporting and annual general meeting (AGM) obligations. Companies that are in external administration are still expected to carry on with these requirements.
Insolvent companies will typically appoint an external administrator to review the business and recommend appropriate action in repaying creditors. While this is happening, the company is still required to fulfil its reporting and AGM obligations. According to ASIC Commissioner Sean Hughes, the relief announced by ASIC will give such companies more time to comply, while still ensuring that members can access information about the company.
Under the new arrangement, such companies will benefit from a 6 to 24-month (deferral relief) extension on the deadline for preparing and lodging financial reports. Companies will also be given another extension of up to 2 months after the deferral relief ends in which to hold an AGM. These extensions are good news for insolvent companies who are often under strain to comply with such obligations while undergoing the necessary steps to winding down. This will give them more flexibility to prioritize tasks that are causing financial distress and postpone reporting functions.
Deferral relief begins when a voluntary administrator, provisional liquidator or managing controller has been appointed to take over control of the company. This relief ends 6 to 24 months thereafter, or when the administration ends. If the voluntary administration is undertaken via a deed of company arrangement, the relief will last up to 24 months after the administration begun, as long as the administrator has been granted majority managerial functions and powers of the company.
This change falls under the ASIC Corporations (Amendment) Instrument 2021/506 and its regulations in the Regulatory Guide 174 Relief on externally administered companies and registered schemes being wound up. ASIC will continue to consider individual requests for additional relief relating to financial reporting and AGM obligations on a case-by-case basis.
ASIC undertook public consultation in January 2021 over its proposed legislative relief for insolvent companies that would allow them to defer their financial reporting and AGM obligations. The Chartered Accountants Australia and New Zealand (CA ANZ) and CPA Australia were amongst those that provided submissions that were generally in support of the changes, but also added commentary on specific requirements and conditions in the relief proposal.
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