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Most organisations are being impacted by the coronavirus (COVID-19) pandemic, either directly or indirectly, and the increased economic uncertainty and risk may have significant financial reporting implications.

Many regulators including the Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA), Australian Stock Exchange (ASX) and Australian Charities and Not-for-profits Commission (ACNC) are providing guidance and relief during this unprecedented period. Your reporting obligations might have changed. Whilst it is recommended that you consult with your lawyers on legal matters, some common questions are outlined below.

How can your organisation protect their ability to pay franked dividends in the current environment?

An Australian resident organisation can consider establishing a separate profits reserve and transfer the net total balance of retained earnings (accumulated profits) that exist at the beginning of its annual reporting period into this reserve to preserve their ability to pay franked dividends in the future.

Where an Australian resident organisation wishes to pay franked dividends to its shareholders, it must meet the three Corporations Act 2001 requirements and have “profits” out of which these dividends can be paid as defined by the Australian taxation regulations.

As a result of the financial and economic stresses arising from COVID-19 related events, organisations that have historically been profitable may be experiencing a significant downturn in financial performance resulting in an expectation of losses in the current and future annual reporting periods. If these losses are offset against opening retained earnings (accumulated profits) that existed at the start of its annual reporting period, this will reduce and possibly eliminate the pool of “profits” available to pay franked dividends against.

The pool of prior period profits can be preserved by the organisation under the Australian tax regulations if they are appropriated to a specific profits reserve.

There are other potential techniques that the organisation might use to pay franked dividends, particularly in instances where the organisation has no profits available to pay a franked dividends e.g. paying dividends out of an unrealised capital profits.

Before proceeding with a resolution to declare/determine franked dividends and applying various treatments involving prior year retained earnings and reserves, the organisation should always obtain the appropriate tax and legal advice.

KPMG Example Public Company Limited (PDF 3.8MB) Consolidated statement of changes in equity, provides an example disclosure on the use of a profits reserve.

Must a public company with a year-end that falls between 31 December 2019 and 7 January 2021 inclusive hold an AGM within 5 months after the end of the financial year?

No. ASIC has provided a two-month extension on the period in which a public company with an annual balance date that falls between 31 December 2019 to 7 January 2021 inclusive must hold their annual general meeting (AGM). ASIC is also supporting the holding of AGMs using appropriate technology.

Although ASIC has granted this extension, organisations should also consider whether a deferred AGM date would comply with the entity’s constitution and seek legal advice if needed.

Given the social distancing rules, what are the different ways to hold the AGM?

Some organisations may wish to hold their AGM using technology instead of traditional physical meetings given COVID-19 restrictions. This could take the form of online meetings (virtual) or physical and online meetings (hybrid).

ASIC considers that hybrid AGMs are permitted under the Corporations Act 2001, but organisations need to check whether their constitution restricts meetings being held in this way. ASIC does not have the power to modify the Corporations Act to facilitate hybrid AGMs where they are not permitted under an organisation’s constitution.

There was some doubt as to whether the Corporations Act permits virtual AGMs and the validity of resolutions passed at a virtual AGM. The Treasurer has issued two determinations which together amend the Corporations Act from 6 May 2020 through to 21 March 2021 which facilitates meetings, including AGMs, being held using one or more technologies (virtual technology) that give all persons entitled to attend a reasonable opportunity to participate without being physically present in the same place.

How does the current level of uncertainty impact an entity’s continuous disclosure obligations under ASX Listing rule 3.1?

Subject to certain exceptions, ASX Listing rule 3.1 requires listed entities to notify the ASX immediately of any information concerning it which a reasonable person would expect to materially affect its share price.

Consistent with this rule, if an organisation had previously released profit guidance and now cannot predict the impact COVID-19 will have on its future earnings, the organisation should consider withdrawing the out-of-date guidance.

Organisations should also consider any specific events or transactions they are undertaking in response to the COVID-19 outbreak that may require disclosure under the ASX Listing rules.

Further, on 25 May 2020, the Government temporarily amended the Corporations Act 2001 so that companies and officers will only be liable if there has been “knowledge, recklessness or negligence” with respect to updates on price sensitive information to the market. The changes will be in effect until 23 March 2021.

Organisations should seek legal advice where necessary to ensure that they have appropriately discharged their continuous disclosure reporting obligations.

What is the reporting deadlines relief provided by ASIC?

The following table sets out the current state of play as at 13 November 2020:

Entities reporting to ASIC Balance dates up to 7 January 2021
Balance dates after 7 January 2021
Listed entities1 1 month extension2 (i.e. 3 months to 4 months)
No announcement as yet – ongoing monitoring by ASIC
Unlisted disclosing entities and unlisted registered schemes 1 month extension3 (i.e. 3 months to 4 months)
No announcement as yet – ongoing monitoring by ASIC
Other unlisted entities 1 month extension3 (i.e. 4 months to 5 months)
No announcement as yet – ongoing monitoring by ASIC
  1. Where ASX has granted relief it has set out some additional conditions, to ASIC relief, that must be satisfied.
  2. Entities with balance dates before 21 February 2020 will not receive the one month extension
  3. Entities with balance dates before 31 December 2019 will not receive the one month extension.

ASIC continues to monitor market conditions and COVID-19 and their impact on financial reporting obligations.

Entities anticipating issues in meeting their financial reporting deadlines can apply for individual relief with ASIC. If applying for relief ASIC recommends applying at least 14 days before the financial reporting deadline.

Listed entities
ASIC has allowed listed entities to take one additional month to report for full year and half-year financial reports for 21 February 2020 to 7 January 2021 balance dates. Listed entities will be required to inform the market when they rely on the extended period for lodgement.

The ASX granted an equivalent class waiver to listed entities for full year and half-year financial reports for 21 February 2020 to 7 July 2020 balance dates to enable them to take advantage of the deadline extension for lodging full year and half-year financial reports provided by ASIC. Under the waiver if the audited or reviewed half-year accounts or the full year accounts are ready, prior to the extended deadline, they must be given to the ASX. The waiver has a number of conditions that must be satisfied – refer What reporting deadline relief has the ASX provided? We have been advised that ASX is expected to extend its relief in line with ASIC to 7 January 2021 on the same basis as the aforementioned waiver. We anticipate this will be issued before the end of November 2020.

Unlisted entities
ASIC has extended the deadline for unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act 2001 by one month for years from 31 December 2019 to 7 January 2021.

The extended deadlines will not apply if the reporting deadline has already passed at the time the relief is registered.

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What reporting deadline relief has the ASX provided?

ASX listed entities
The ASX granted an equivalent class waiver to listed entities for full year and half-year financial reports for 21 February 2020 to 7 July 2020 balance dates to enable them to take advantage of the deadline extension for lodging reports provided by ASIC – refer What is the reporting deadlines relief provided by ASIC? We have been advised that ASX is expected to extend its relief in line with ASIC to 7 January 2021 on the same basis as the aforementioned waiver. We anticipate this will be issued before the end of November 2020.

Under the waiver if the audited or reviewed half-year accounts or the full year accounts are ready, prior to the extended deadline, they must be given to the ASX.

The waiver has a number of conditions that must be satisfied:

  • Listed entities will need to lodge their Appendix 4D and 4E under the ASX Listing Rules by the due date (for example, 31 August 2020 for 30 June 2020 full year ends). If the entity does not have audited or reviewed financial statements by that date to append to its Appendix 4D or 4E, it will need to lodge unaudited or unreviewed financial statements with its Appendix 4D or 4E.
  • At the time of lodging the Appendix 4D or 4E the entity must make an announcement to the market that details the following:
    • that the entity is relying on the ASIC relief to extend the lodgement date for the half-year or full year report
    • an explanation of the reason for relying on such relief
    • that the entity will immediately make a further announcement to the market if it becomes aware that there will be a material difference between its:
      • unaudited or unreviewed half-year accounts and the audited or reviewed half-year accounts, or
      • the unaudited full year accounts and the audited full year accounts.

The objective of the above conditions is to ensure that the market continues to receive timely financial information.

ASX/NZX dual-listed entities
ASX granted an equivalent class waiver to dual listed ASX/NZX entities incorporated in New Zealand and admitted to ASX as a standard ASX Listing, to align with revised deadlines provided in a NZX Class Waiver granted in New Zealand.

The NZX Class Waiver extends the deadlines for filing financial statements and annual reports for NZX listed entities with balance dates between 30 September 2019 and 31 July 2020. NZX listed entities have up to an additional 30 days to prepare and release their results announcements (including preliminary interim and full year financial statements), and up to an additional two months to prepare and release their annual reports.

Dual listed ASX/NZX entities admitted to ASX as Foreign Exempt Listings automatically qualify for the extension to their filing deadlines under the NZX Class Waiver without needing to do anything under the ASX listing rules.

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