Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)14. Chapter 2N: Annual returns and lodgments with the ASC
14.1 The new rules contained in Chapter 2N omit over half of the items currently required to be included in the company annual return. These matters are either not relevant for corporate law regulatory purposes or can be ascertained readily by a search of the ASC database. Their removal will make the annual return easier for businesses.
14.2 The provisions in Chapter 2N replace the parts of the Corporations Law and Corporations Regulations which currently deal with the annual returns of companies and prescribed interest schemes. They also cover the lodgment of documents with the ASC, including electronic lodgment.
Lodgment of annual returns
14.3 The Bill requires a company to lodge an annual return with the ASC by 31 January each year, unless the ASC and the company agree to a different lodgment date (Bill s 345(1)). The annual return of a proprietary company currently relates to a calendar year and the return for a public company is linked to its financial year (current ss 335(1) and (1A)).
14.4 The new rule imposes an obligation on all companies to lodge a return once in every 12 month period beginning on 1 February. The rule reflects the current lodgment date for proprietary companies. However, the reference to calendar year has been removed because the nature of the lodgment obligation has changed. Under the Bill, the return focuses on brief summary information about the company on the day on which the return is completed, such as its status as a public or proprietary company or its principal activities, rather than on aspects of the company which relate to a full year. There is therefore no need for the obligation to be linked to a calendar year. The rule simply requires the lodgment of a return in every 12 month period and by 31 January.
14.5 Similarly, the annual return of a public company will no longer be linked to its financial year. Financial information will be lodged under a separate regime set out in Chapter 2M (Bill s 319). The Bill deals with transitional arrangements for the lodgment of public company accounts for the last financial year in which the current Law applies (Bill s 1431).
14.6 The annual return obligation for a collective investment scheme is co-located with the obligation for companies (Bill s 345(2)). The annual return lodgment date for a collective investment scheme will continue to be linked to its financial year.
14.7 The Bill also makes provision for the ASC and the company or responsible entity for a collective investment scheme to agree to a different lodgment date (Bill s 345(3)). This facility will enable the ASC to establish a staggered lodgment timetable by agreeing upon dates other than 31 January for the lodgment of annual returns.
14.8 The Bill replaces current sections 338 and 1353 (Bill s 345(4)). Section 338 does not require the separate lodgment of certain information if the information is lodged in the annual return. The Bill operates in the same way, by providing that lodgment of details of a change of registered office, principal place of business, company director or secretary or of details of the issue of shares in the annual return will exempt a company from the obligation to notify these events separately to the ASC. However, if the company is liable for a late fee for a failure to notify the ASC of these events within the required time, lodging the information in the annual return will not remove the liability.
14.9 A company will be required to notify the ASC of a change in the address of its registered office or principal place of business within 14 days of the change (Bill ss 142 and 146). The prompt updating of this information is important for people dealing with the company, particularly creditors. The Bill repeals and replaces existing section 242, which deals with the obligation to notify the ASC of a change in company officeholders. The Bill also requires this important information to be notified within 14 days. The requirement to notify the ASC of an issue of shares will continue to allow 1 month for lodgment of the notice (Bill s 254X). This difference reflects the different nature of the information required to be lodged. An issue of shares does not have the potentially immediate impact which a change of registered office, principal place of business or directors may have, particularly for company creditors.
14.10 The directors solvency resolution is retained as it is a useful discipline for directors and requires them to focus on the question of company solvency (Bill s 346). However, Chapter 2N modifies the requirements for the resolution.
14.11 If a company has not lodged a financial report with the ASC in the previous 12 months, its directors must pass a solvency resolution (Bill s 346(1)). The annual return must state whether or not the resolution has been passed (Bill s 348 Item 9).
14.12 Because Item 9 in section 348 requires a statement of whether or not the solvency resolution has been passed, rather than a statement that the resolution has been passed, the return will be able to be lodged even if it has not been passed. This avoids a problem currently faced by company secretaries who are deemed by current subsection 83(2) to be knowingly concerned in a failure to lodge an annual return, even though they cannot compel a companys board of directors to resolve to adopt the contents of the annual return, as required by Corporations Regulation 3.8.01(zb)(iv). Under the Bill, the directors of the company will be separately liable to a fine of up to $500 if they do not pass the solvency resolution (Bill s 346(1)).
14.13 Companies required to lodge financial reports are already under an obligation to include a solvency declaration in the directors declaration about the financial statements (current s 301(5)). To avoid repetition of obligations, the solvency resolution will not have to be included in the annual return if the company has lodged accounts with the ASC during the 12 months before the lodgment of that return (Bill ss 346, 348 Item 9 and 1435).
Content of company annual returns
14.14 The Bill sets out the requirements for the contents of annual returns for companies (Bill s 348). This information is located in the Law, rather than in the regulations as at present, making the rules easier to find. The annual return must, however, contain any information required by the regulations.
14.16 The content of the annual return covers the basic features of the company, including its ACN and name, details of the registered office and principal place of business and of each director and secretary (Bill s 348 Items 1 - 5). The number of issued shares and options granted must also be stated (Bill s 348 Items 6 and 7).
14.17 The Bill simplifies the current rules on including lists of members in the annual return. Rather than requiring the annual lodgment of a list of members, the new rules focus on members who hold significant proportions of a companys share capital (Bill s 348 Item 8).
14.18 A company which has 20 or fewer members will be required to include a full list of members with the annual return. A company which has more than 20 shareholders will only have to supply details of the top 20 shareholders in each class of share.
14.19 If there are more than 20 people whose interests could be listed in the largest 20 shareholdings, the return will be required to include the details of each of those shareholders. For example, if 15 people each hold 5% of the shares in a particular class, and 20 people each hold 1%, the details of all of those 35 shareholders must be included in the annual return. If a person is seeking information about who holds the remaining 5% of the shares, they can obtain it from the companys register of members.
Contents of collective investment schemes annual returns
14.20 The table in section 349 of the Bill specifies the information that is required to be included in the annual return of a registered collective investment scheme.
14.21 The matters required to be disclosed in annual returns for collective investment schemes have been rationalised. The specific disclosure requirements which have been omitted include:
- (a)
- the summary of all purchases and sales of lands and marketable securities
- (b)
- brokerage and other benefits charged by the management company
- (c)
- lists of investments (current s 1071).
14.22 Information of this character will be required to be disclosed in the financial report and directors report for the scheme under Chapter 2M. These details will be available on the ASC database and must be sent to members (Bill s 314).
14.23 The proposed rules for annual returns for registered collective investment schemes largely parallel those for companies. However, some differences take into account the particular characteristics and diversity of such schemes.
14.24 In regard to the content of the return, a distinction is made between schemes which are unit trusts and other schemes. The disclosure required in relation to units of unit trusts will be similar to that for companies limited by shares (with units in the trust treated in the same way as shares in a company). The approach taken in the Bill in relation to interests in other schemes is based on that presently taken in the Corporations Regulations (Form 723) in relation to returns for prescribed interests schemes. The new requirements are set out in the table in section 349 of the Bill.
Lodgment
14.25 Chapter 2N simplifies the rules on lodging information with the ASC.
14.26 If a document must be lodged in the prescribed form and the regulations prescribe a form for that document, the prescribed form will be required. If a form is not prescribed in the regulations and the ASC has approved a form for the document, the ASCs approved form will be required (Bill s 350).
14.27 Annual returns and other documents will be able to be lodged electronically if agreed by the company or responsible entity and the ASC. This provides a framework to enable companies or responsible entities that lodge documents electronically with the ASC and those seeking access to information contained in those documents to benefit from more efficient and timely dealings with the ASC (Bill ss 347 and 352).
14.28 The rules for signing documents lodged with the ASC in writing will be located in the Law, rather than in the regulations as at present (Bill s 351). Documents lodged electronically with the ASC will be required to be authenticated in the manner agreed in the electronic lodgment agreement between the ASC and the person (acting either on their own behalf or as an agent ) seeking to lodge the document (Bill s 352).
14.29 The Law requires that applications to the ASC must be in writing (current s 102). The Bill will add a note to section 102, referring readers to section 352 of the Bill on electronic lodgment (Bill Schedule 2 Item 373).