In this update we examine the rationale and process to change a Listed Investment Company’s (LIC) financial year-end date, and the benefits as they apply to LICs.
Most LICs subscribe to a 30 June financial year-end date. This date is in line with the financial year for most Australian reporting entitles, but it poses a problem to LICs where the Investment Manager has a dual role as a company director.
An immediate priority for the Investment Manager is to review the full year results and seek out new opportunities, as well as to preserve wealth for shareholders. For a director, the immediate priority is to ensure that the LIC is meeting its disclosure obligations as a listed entity.
A director’s various roles are recorded and updated not only to manage conflicts but to disclose the time pressures that directors face to discharge their duties effectively. With small cap LICs, often the Investment Manager sits on the board of the listed fund and the Investment Management Company, with no external directorships. However, given the nature of the business, reporting cycles cause a lot of demand on the Investment Manager’s time – and, as a result, some LICs have started to consider changing their financial year-end date.
The Australian LIC market
Non-standard year-end dates are becoming common in the Australian LIC market.
Future Generation Investment Company Limited (ASX:FGX) and Future Generation Global Investment Company Limited (ASX:FGG) both changed their financial year-end date to 31 December. The change occurred in December 2016, with the Chairman Jonathan Trollip citing the practical difficulties in meeting reporting deadlines as the main driver behind the change.
LICs are also opting for a non-standard year-end date at the IPO stage, with Morphic Ethical Equities Fund Limited (ASX:MEC) adopting a 30 September year-end for their first quarter 2017 listing.
How to change your financial year-end date
If your entity is listed, the most common process is as follows:
- The company seeks advice on the taxation consequences of changing its financial year-end date.
- The board resolves to amend the financial year-end date.
- The company lodges a submission with ASIC requesting a change to its financial year-end.
- If the submission is accepted by ASIC, the company announces the change on the ASX and lodges the appropriate regulatory paperwork.
The process of approval by ASIC is not automatic. There are specific criteria that must be met before amending the financial year-end date of an entity; in particular, ASIC requires that shareholders should not be worse off as a result of the change, and should be kept informed. ASIC have often rejected applications where an entity cannot demonstrate that complying with this requirement would impose an unreasonable burden.
Often a company may be required to submit a bridging annual report to address the period between the previous and new financial year-end dates, before reverting to a twelve-month financial year in line with its new calendar.
This update is prepared by the Company Secretarial Team at Boardroom Pty Limited. The update is designed to provide general information and is not designed to replace legal or tax advice or a detailed review of the subject matter nor is it intended to cover all circumstances.