There has been some conjecture as to what the member reporting obligations are for public companies limited by guarantee (excluding small public companies limited by guarantee that are exempt from financial reporting).  Section 316A, which was introduced by the recent legislative reforms states as follows:-

• s.316A(1)    “A member of a company limited by guarantee may, by notice in writing to the company, elect to receive a hard copy or an electronic copy of the following reports:
  (a)    The financial reports;
  (b)    The directors’ reports;
  (c)    The auditor’s reports.”

• s.316A(2)    “If a member makes an election in a financial year, the election:
  (a) is made by the member for that financial year; and
  (b) is a standing election made by the member for each later financial year until the member changes the election”

There are some implications here that may have escaped the management of such public companies and their advisers.  They are as follows:-


Public companies limited by guarantee are used to having the obligation of reporting to members by the earlier of 4 months of year end or 21 days prior to the AGM.  However, section 316A now does not impose this obligation upon the company until the member has notified the company that it elects to receive the financial report. 

The members are only going to know that the financial reporting obligations of their company have changed if the company tells them.  However, there is nothing in section 316A that compels the company to notify the member of their responsibility should they wish to receive the financial statements.  It will therefore be up to the Company to voluntarily notify the members of the new arrangements.

(2)    What happens for years ending 30 June 2010?

Pursuant to s.316A(2), any election received after 30 June 2010 is deemed to be a standing election for 30 June 2011 and onwards.  The law therefore does not cater for elections in relation to 30 June 2010 reporting.  It is therefore recommended that companies continue to report to members for 30 June 2010. There does however appear to be a legal impediment to distributing a concise financial report for 30 June 2010 since a concise financial report is no longer a recognised form of reporting for public companies limited by guarantee for years ending on or after 30 June 2010 under the Corporations Act (new section 314(1AAA).  In this regard, it would appear that the company has been cornered into distributing a full financial report for 30 June 2010.

(3)    What happens for years ending 31 December 2010?

Pursuant to s.316A(2), up to 31 December 2010, members can make an election to receive the financial report.  The Company should notify members of their options with respect to receiving financial reports and provide them with adequate time to respond by 31 December 2010.  

(4)    There is no allowance in s.316A for distributing a concise financial report.  Can I still send one to my members?

NO... As mentioned above, the distribution of a concise financial report prepared in accordance with the Corporations Act is prohibited.  However a company may send out summarised financial information but only if the member has not otherwise elected to receive the financial report as a hard copy or an electronic copy.  Should this member election be made, this will then trigger an obligation to provide a full financial report to the member. 

However, in order for companies to achieve a similar outcome as concise reporting, they might consider writing to members advising them that if they wish to continue to receive financial information in a form similar to past reports, they should do nothing and allow the company to prepare and send out summarised financial information.  The contents of such information can be determined by the company as they see fit to satisfy the information needs of the members, but it is important that this financial information state the basis upon which it has been prepared, and not make reference to having been prepared in accordance with the Corporations Act.


Contact

Rob Mackay
T +61 3 8635 1800
rmackay@moorestephens.com.au

www.moorestephens.com.au