Deeds of cross-guarantee
This information sheet (INFO 24) answers the most frequently asked questions and lists some of the common problems relating to deeds of cross-guarantee (deeds). Such deeds must be lodged with ASIC before a wholly-owned company will be eligible for relief under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
The applicant is responsible for lodging the deed and supporting documentation before the end of the financial year in which they wish to first use the relief provided by the instrument. We do not approve the deed.
- What must be lodged?
- Is a Form 911 required?
- What if the deed is to remain in a particular state or territory?
- Is an alternative trustee required?
- What if the deed is executed under a power of attorney?
- Must all wholly-owned entities be included in the deed?
- Common problems identified by ASIC
The applicant must lodge:
- the original of the deed (using wording from Pro forma 24 Deed of cross guarantee (PF24));
- a certificate setting out prescribed statements about the deed, given by a certified practising lawyer;
- the fee.
A Form 911 Verification or certification of a document is not required. However, the deed and supporting documentation should be accompanied by ASIC Coversheet from CF06 Deeds of cross guarantee and related documents - ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 or a covering letter.
If, for stamp duty reasons, the applicant requires that the deed remain in a state or territory other than that in which the companies seeking relief have their registered offices, this should be clearly stated in the covering letter. A certified copy of the deed should also be submitted. This will be sent to ASIC’s Traralgon Office so that the public records can be updated.
An alternative trustee is only required if a group entity has been appointed as the trustee. In most cases, the alternative trustee will be another group entity. If the trustee is a company outside the group, an alternative trustee is not required.
If the deed has been signed under a power of attorney, a certified copy of the instrument(s) appointing the attorney must be submitted.
All entities within the closed group must be included in the deed. However, if a stand–alone wholly-owned company does not require relief, it need not be included. For example, in the diagram below, if company D seeks relief, companies A, B, C and E must be included in the deed. Company F need not be included in the deed if it does not need relief. If companies B, C and E need relief, only companies A, B, C and E need be party to the deed.
All the companies seeking relief must be included, along with any entity that holds shares, either directly or indirectly, in those entities seeking relief.
Wholly-owned entities not eligible for relief, nevertheless, may and often must be members of the closed group and parties to the deed. For instance, if company F in the diagram above was a small proprietary company, but anticipated becoming a large proprietary company, it might be convenient for it to be a party to the deed with companies A, B and C.
Common problems with deeds that we have identified include:
- Completion of Part 1 of the Schedule
- The deed contains typographical errors or incorrect Australian Company Numbers (ACNs) or Australian Registered Body Numbers (ARBNs)
- Deed incorrectly executed
- Alternative trustee has not been appointed and is required to be
- Solvency statement does not identify deed
- Companies under external administration
- Opt-in notice not lodged
Part 1 of the Schedule to the deed should be completed with the following information as at the date of execution of the deed:
- only the name and ACN or ARBN for the holding entity of the closed group should be inserted under item (1) of Part 1
- only the names and ACNs of those group companies (not including the holding entity) who are members of the closed group and that are eligible to obtain the benefit of the relief under the instrument should be inserted under item (2) of Part 1
- all entities that are parties to the deed and that are not listed in either item (1) or (2) of Part 1 of the Schedule should be listed under item (3). Details of entities that are wholly-owned entities of the holding entity of the closed group but that are not party to the deed should not be inserted under this clause or any item in Part 1 of the Schedule.
Part 1 of the Schedule has no effect on the future eligibility for relief under the instrument of a company noted under item (3) of Part 1. For instance, a small proprietary company on the verge of being a large proprietary company that is a party to the deed and listed under item (3) of Part 1 may still claim relief if at a later date the small proprietary company does in fact become a large proprietary company.
Minor amendments to deeds (e.g. correcting minor typographical errors) will only be accepted if they are initialed by every signatory to the deed. If a more serious deficiency is detected (e.g. a member of the closed group has been omitted), the deed will not be accepted and a new deed (i.e. a fresh lodgement and fee) will be required.
A deed must be signed by two directors or at least one director and the company secretary of each entity named in the Schedule to the deed, including the trustee and, if applicable, the alternative trustee. In addition, the deed must be sealed by every entity that is a party to the deed, including the trustee and, if applicable, the alternative trustee.
Alternative trustee has not been appointed and is required to be
An alternative trustee must be appointed if a group entity has been appointed as the trustee. In most cases, the alternative trustee will be another group entity. If the trustee is a company outside the group, an alternative trustee is not required.
Companies under external administration
Companies that are under external administration and any entities owned by such companies are not eligible for relief.
A number of closed groups have mistakenly assumed that, after a deed has been successfully lodged with us, companies that are parties to the deed are automatically entitled to relief from lodging financial reports. However, each company that wishes to take advantage of relief under the instrument must also lodge an opt-in notice (Form 389 Opt–in/change of holding entity notice by wholly-owned company relieved from financial reporting obligations) with ASIC within four months after the end of the first financial year for which relief is required.
The opt-in notice need only be lodged once and, assuming the conditions of the instrument continue to be met, the relief will continue until either an opt-out notice (Form 399 Opt–out notice by wholly-owned company relieved from financial reporting obligations) or financial reports are lodged with us: see section 7 of ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
This is Information Sheet 24 (INFO 24), reissued in February 2010 and February 2017. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.