The grandfather clause that made thousands of Australian private companies exempt from lodging financial reports with the corporate regulator was perhaps not the most memorable event of the mid-1990s.
At a time when the internet, subscription television and mobile phone networks were being established in Australia, corporate law was also changing under Prime Minister Paul Keating.
In 1995, for the first time, private companies were required to lodge financial reports with the Australian Securities Commission, the forerunner to the Australian Securities and Investment Commission.
The drafted legislation would have included large proprietary companies that were owned by individuals or family companies controlled by some of the nation’s wealthiest people.
However, citing the existing close ownership of those companies and privacy concerns, an exemption was granted and large proprietary companies that met certain criteria in 1995 were not required to lodge financial reports with ASC or ASIC if they maintained specific conditions.
These requirements included maintaining ASIC’s definition of a large company, and ensuring the company’s financial reports were subject to audit and sent to members.
Over recent years, ASIC has recommended the removal of this exemption in various inquiries into corporate tax avoidance, and critics have described the clause as allowing some of Australia’s most wealthy individuals to keep their finances from public scrutiny.
But the exemption has now been quashed, with the recent passing of an amendment to company laws that will impact about 1,100 of Australia’s biggest private companies.
Effective for financial years ending on or after 10 August 2022, the exemption from the lodgement of annual financial reports of these grandfathered companies has been withdrawn by the Government.
For those ‘grandfathered’ large proprietary companies, the exemption from lodgement applies for the last time in relation to the 30 June 2022 annual financial report. Annual financial reports of future financial years will require lodgement with ASIC.
The change removes the perception of a two-tiered system for financial disclosure and transparency, given the finances of large private companies created since 1995 are subject to public scrutiny, although may prompt some private business to rethink their structure.
It was a decision welcomed as a win for transparency by campaigners for the change, and criticised as corporate voyeurism by those now in the cross hairs.
