International Law

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP,has released the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 and the accompanying Regulations for comment.

Companies limited by guarantee

The main change affects Australia's 11,000 companies limited by guarantee, many of which are sports and recreation related organisations, community service organisations, education-related institutions and religious organisations.

A three tiered differential reporting framework will be introduced exempting small companies limited by guarantee from reporting and auditing requirements and providing other companies limited by guarantee with streamlined assurance requirements and simplified disclosures in the directors? report. In addition, the process for companies to distribute the annual report to their members will be streamlined.

Companies limited by guarantee will be prohibited from paying a dividend, as the government believes the corporate structure of companies limited by guarantee means that they are not suited for conducting for-profit activities which could legitimately warrant the payment of dividends to members.

Under the first tier, companies would be exempt from preparing the financial report and the directors? report. This tier comprises of companies limited by guarantee with annual revenue less than $250,000 which do not have deductible gift recipient status.

Under the second tier, companies would:

• prepare a financial report, which they could elect to have reviewed rather than audited;
• prepare a streamlined directors? report, rather than a full director?s report; and
• be subject to a streamlined process for distributing the annual report to members.

The second tier comprises of the following companies limited by guarantee:

• companies with an annual revenue of less than $250,000 that are a deductible gift recipient; and
• companies with an annual revenue of $250,000 or more but less than $1 million, irrespective of whether the company is a deductible gift recipient.

Under the third tier, companies would:

• continue to prepare an audited financial report;
• prepare a streamlined directors? report, rather than a full director?s report; and
• be subject to a streamlined process for distributing the annual report to members.
• The third tier comprises of companies limited by guarantee with an annual revenue of $1 million or more, irrespective of whether the company is a deductible gift recipient.

Other changes

The other key measures include:

• streamlining parent-entity reporting;
• providing greater flexibility for companies to pay dividends, by replacing the profits test with a solvency-type test; and
• allowing companies to more easily change their year-end date.

The reforms will also implement refinements to the regulatory framework, including:

• improving disclosure of non-financial information in the directors' report;
• protecting solicitors' representation letters from disclosure to enable auditors to properly verify a company's contingent liabilities;
• refining the statement of compliance with International Financial Reporting Standards contained in the directors' declaration; and
• clarifying the circumstances in which a company can cancel its share capital.

The closing date for submissions is 3 February 2010.