Red Tape Relief

Red Tape Relief
Posted on 13 Oct 2021

On 6 October 2021, the Australian Securities and Investments Commission (ASIC), by way of the ASIC Corporations (Amendment) Instrument 2021/506 implemented measures aimed at reducing red tape and the regulatory burden placed on companies in external administration by relieving them of certain statutory obligations. These measures relax the requirements of companies in external administration to meet their financial reporting and annual general meeting (AGM) obligations under the Corporations Act 2001 (Cth) (Act).

Specifically, these measures defer the requirement of companies under external administration to comply with their financial reporting obligations imposed by Part 2M.3 of the Act and any continuing obligations under that part of the Act for a minimum period of 6 months and a maximum period of 24 months. The deferral relief begins on the day on which a voluntary administrator, managing controller, or provisional liquidator is appointed to the company and ends at the earlier of either the administration ending or the expiry of the 24-month period. The requirement of the externally administered company to hold an AGM under section 250N of the Act is then to be deferred for a further 2 months after the end of the deferral relief. 

In the event that the voluntary administration leads to a deed of company arrangement (DOCA) being executed, the deferral relief may continue for a further 24 months provided that the deed administrator exercises substantially all of the management functions of the company under the DOCA. Companies in liquidation are not automatically entitled to the deferral relief but may be entitled to exemption relief under the Act. 

The underlying purpose of this relief is to reduce the strain on companies already in financial distress. ASIC, in consultation with the general public had determined that the Act’s financial reporting and AGM obligations placed an unreasonable strain on companies already subject to the financial and human resource constraints brought about by external administration. 

While the relief may limit the financial information available to an externally administered company’s members, the pros far outweigh the cons, particularly in circumstances where the costs of preparing and lodging a company’s financial reports and holding an AGM are ultimately borne by the company’s members and these costs could ultimately reduce the funds available for distribution to the company’s creditors. 

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