They are out there … somewhere … lurking in the shadows of corporate Australia. They are the companies obliged to lodge annual financial reports with ASIC that fail to do so.
Time to self-correct non-compliance is running out for one class of non-lodgers, the formerly “grandfathered” large proprietary companies.
The relief from lodging audited financial statements ceased with the repeal in 2022 of the exempting instrument. Lodgements deadlines have passed for 2 sets of statements (e.g. years ending 31 December 2022 and 2023, or 30 June 2023 and 2024).
When the exemption from lodging came into effect as a response to 1994 measures that changed proprietary company classifications from:
- exempt and non-exempt, based on whether any public company had a direct or indirect ownership interest, to
- large and small, based on the numbers for revenue assets and employees
there were over more than double the approximately 1000 grandfathered companies that remain on ASIC’s companies register now. ASIC officers have reported that around 300 of these companies have not filed an annual report since the 2022 change.
There may have been some lack of awareness at first because of the manner of the change through a non-Government amendment in the Senate. ASIC drew attention to the change, including the need for new lodgements in its focus areas and surveillance program for 2024. Now, ASIC is repeating its message and advising that its 2024-25 surveillance activities include a focus on the outstanding lodgements of those companies , by enquiry and enforcement action if required.
Some of the non-lodgers may be companies that are no longer required to send an annual financial report to ASIC. For example, the company may have changed to become a small proprietary company or controlled by a lodging foreign company. ASIC will identify such circumstances through its enquiries.
Companies that self-correct by making outstanding lodgements face different consequences to those that are discovered by ASIC. Recent history shows ASIC issues infringement notices or obtains court-imposed penalties against non-lodgers of financial statements. For example in November 2024 a foreign-controlled small proprietary company paid a $187,800 penalty imposed by an ASIC infringement notice. The company self-reported the non-compliance to ASIC. The penalty was 50% of the maximum possible.
The judgement in the case of Canon Australia Pty Ltd, in the matter of Canon Australia Pty Ltd [2023] FCA 281 is instructive. It shows that relief is available under s1322(6) of the Corporations Act for inadvertent non-compliance when a person acted honestly and there has been no substantial injustice arising to any person. In that case, an error was made by naming a company as trustee of a deed of cross guarantee entered into to obtain financial reporting relief for subsidiaries. The named company was also a group entity, so there should have been an alternative trustee, a detail that was inadvertently overlooked amidst relying on incomplete professional advice. The relief meant breaches were waived and no penalties applied. Failure to know the status and meet the reporting obligations of a company are not inadvertent non-compliance.
Other large proprietary companies
Another category of non-lodgers I have encountered is proprietary companies that are unaware that they meet the classification “large”. This can happen where financial statements are prepared a special purpose financial reports, or where accounting standards have not been applied appropriately in statements described as general purpose.
A proprietary company is classified as large when it meets two out of these three criteria in respect of a financial year:
- the consolidated revenue for the financial year of the company and any entities it controls is $50 million or more;
- the value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $25 million or more; and
- the company and any entities it controls have 100 or more employees at the end of the financial year
Applying various accounting standards can result in larger amounts being recognised for assets and revenue than would otherwise be the case. The use of fair values rather than historical cost, and recognising lease assets on balance sheet are two examples. However the most likely candidate is failing to use numbers reflecting consolidation and equity accounting when an entity controls or significantly influences one or more other entities.
In most cases involving failure to lodge, it is necessary to submit the outstanding audited financial statements. This is less of a problem for grandfathered proprietary companies who were obliged to have financial statements prepared and audited on time as a condition of the relief from lodgement. However, some other entities may not have prepared suitable financial statements or obtained an independent audit report. They face greater difficulty in meeting their obligations.
If you need assistance in identifying or addressing financial reporting obligations, we can help – please contact us.
Sonya Sinclair