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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 July 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 July 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 issued two determinations which together temporarily amended the Corporations Act from 6 May 2020 through to 21 March 2021 which facilitated 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.

The Government proposed to extend these measures, however, the relevant Bill (Treasury Laws Amendment (2021 Measures No. 1) Bill 2021) was delayed. ASIC therefore adopted a ‘no action’ position relating to the convening and holding of meetings using virtual technology for meetings held between 21 March 2021 and the earlier of:

  • 31 October 2021
  • the date that any measures are passed by the Parliament relating to the use of virtual technology in meetings of companies or managed investment schemes.

In early August 2021 the Government passed the Treasury Laws Amendment (2021 Measures No. 1) Bill renewing the measures contained in the determinations.  The relief provided by the Bill will remain in force until 31 March 2022, however, the Government is expected to introduce permanent reforms in late 2021.  ASIC's 'no action' position is no longer required from 14 August 2021 due to the passing of the Bill.

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, organisations should 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.

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 were in effect until 23 March 2021. In early August 2021 the Government passed the Treasury Laws Amendment (2021 Measures No. 1) Bill making these temporary reforms permanent.  The changes are effective from 14 August 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 29 April 2021:

Entities reporting to ASIC Balance dates up to 7 January 2021
Balance dates between 8 January and 22 June 2021 Balance dates between 23 June and 7 July 2021 Balance dates after 7 July 2021
Listed entities1 1 month extension2 (i.e. 3 months to 4 months)
No extension relief available 1 month extension (i.e. 3 months to 4 months) Not currently intending to extend
Unlisted disclosing entities and unlisted registered schemes 1 month extension3 (i.e. 3 months to 4 months)
No extension relief available 1 month extension (i.e. 3 months to 4 months) Not currently intending to extend
Other unlisted entities 1 month extension3 (i.e. 4 months to 5 months)
No extension relief available 1 month extension (i.e. 4 months to 5 months) Not currently intending to extend
  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. ASIC is not intending to extend the class relief for financial reports to entities with financial years that end between 8 January 2021 and 22 June 2021, despite its ‘no action’ position for AGMs up to financial years ending 7 July 2021.

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. In April 2021, ASIC announced an extension of the one additional month to report for financial reporting dates between 23 June 2021 and 7 July 2021. ASIC advises the extension will assist with any pressures on auditor resources taking into account challenges presented by COVID-19 conditions. The relief does not apply to financial years ending from 8 January 2021 to 22 June 2021 – as ASIC considers that the resource constraint noted above is not as strong during this period. 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 matching 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.

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. In April 2021, ASIC announced an extension of the one additional month to report for financial reporting dates between 23 June 2021 and 7 July 2021. ASIC advises the extension will assist with any pressures on auditor resources taking into account challenges presented by COVID-19 conditions. The relief does not apply to financial years ending from 8 January 2021 to 22 June 2021 – as ASIC considers that the resource constraint noted above is not as strong during this period.

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

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