The end of "Grandfathered" exemptions from ASIC financial reporting

Changes to the Corporations Act recently passed by Parliament mean that “Grandfathered” entities will no longer be exempt from lodging financial statements with ASIC under the Corporations Act 2001. 

A legislative exemption which allowed some of Australia’s largest family-owned companies to avoid public scrutiny of their financial information has been removed.

The changes were somewhat unexpected and passed through Parliament quickly. They were passed as Senate amendments to the Treasury Laws Amendment (2022 Measures No. 1) Act 2022, an otherwise largely unremarkable piece of legislation dealing with matters ranging from recovery grants for Cyclone Seroja, to the tax treatment of the 2023 FIFA Women’s World Cup.

The amendments to the Corporations Act removed the “grandfathering” provisions for certain companies which had held “exempt proprietary status” since 1994.  These companies were previously exempt from lodging their financial statements with ASIC.

Ralph Martin, RSM Australia’s National Technical Director said:

" The changes made to remove grandfathering from the Corporations Act are probably overdue.  The existence of grandfathering was always iniquitous, arbitrary, and increasingly unjustifiable, given that it created a protected class of companies which had special privileges allowing them to avoid the same public disclosure obligations faced by their peers."  

What is grandfathering?

When Australia changed its financial reporting framework in 1995, the Keating government allowed the continuation of an exemption which meant certain private companies were not required to lodge financial statements with ASIC.

These “exempt proprietary companies” were defined by the former section 319(4) of the Corporations Act, which continued to have force due to transitional provisions in s1408 of the current Corporations Act.   The definition was complex, and has long since been removed from the Corporations Act.  It was based on whether there was any direct or indirect public ownership, or whether the company was ultimately owned by private individuals as at 30 June 1994.

The reforms in 1995 first introduced the concept of a “large proprietary company.” However, at the time, this exemption allowed existing exempt proprietary companies to retain their exemption from lodging financial statements on the public record for as long as they continued to meet the old definition of an “exempt proprietary company”. 

While this was originally intended as a temporary measure, the relief was not time-limited, and no subsequent government had amended it, although ASIC had previously noted that there was no basis for its retention. 

" Grandfathering was a legislative relic from the 1990s which was never intended to endure for nearly 30 years.  We believe that all proprietary companies should be treated equally under the law, rather than allowing the continuance of a two-tier system which allowed certain companies to avoid the public disclosure obligations faced by their competitors, based solely on their status in 1994.”

~ Ralph Martin, RSM Australia’s National Technical Director.

What is changing?

The effect of the legislative amendments removes the transitional provision from the Corporations Act 2001. 

The effect is that previously “grandfathered” companies are now treated the same as any other Australian proprietary company. This means that if they are “large” they must lodge financial statements with ASIC, which will be publicly available, unless they are eligible for one of the other exemptions available.

The similar relief existing under ASIC Legislative Instrument 2015/840, which allowed companies to avoid lodging financial statements where a foreign company held a non-controlling ownership interest, has also been abolished.

How many companies are affected?

When the legislation was originally passed in 1995, around 2,000 “exempt proprietary companies” were affected. 

Due to changes in corporate structures since then, a little over 1,100 “exempt proprietary companies” remain who continued to be exempt from lodging financial statements with ASIC and disclosing their financial information on public record, regardless of their size.

When are the changes effective?

The changes come into effect for financial years ending on or after the commencement of the legislation, which occurs in August 2022. 

This means that the grandfathering exemption will still be available for 30 June 2022 year-ends, but that it will no longer be available for years ending 31 December 2022 or 30 June 2023.

For further information

Please contact Ralph Martin, National Technical Director of RSM Australia or your local RSM office.