In brief: Proposed changes will increase the thresholds for determining what constitutes a large proprietary company under the Corporations Act 2001 (Cth)
On Friday 16 November 2018, the Treasury released for consultation, exposure draft regulations to the Corporations Regulations 2001 as well as an explanatory statement. The exposure draft regulations contain proposals to reduce the financial reporting burden for some proprietary companies which will help reduce costs for smaller proprietary companies.
The announcement is contained here and implementation of the changes is subject to consultation.
The new threshold test - what constitutes a large proprietary company?
Currently, there are a number of threshold tests to determine whether a company is considered a large proprietary company. The exposure draft regulations propose to make a number of changes to these thresholds, namely:
- increasing the consolidated revenue for the financial year of the company and the entities it controls from $25 million to $50 million;
- increasing the value of the consolidated gross assets at the end of the financial year of the company and the entities in controls from $12.5 million to $25 million; or
- increasing the number of employees the company and the entities it controls has at the end of the financial year from 50 employees to 100 employees.
Increasing the threshold will reduce costs for proprietary companies that would no longer be required to lodge financial reports with ASIC
The changes appear to be directed towards the modernisation of the threshold figures in line with economic growth. Further, there is no proposed change for the methodology for determining the figure. The changes will aim to ensure that financial reporting obligations are targeted towards larger proprietary companies.
An important issue in assessing the change is the policy underpinning the size test. The policy is that large proprietary companies attract public accountability because they are economically significant. The proposed thresholds reflect the growth in company size since the last review of the threshold figures in 2007.
If the proposed changes occur ASIC may revisit its policy, exemptions and modifications for large proprietary companies. The Commonwealth Government may also take into account these exemptions and modifications as part of the proposal.
The Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 is currently being passed through Parliament. The changes to the large proprietary company thresholds will reduce the number of proprietary companies required to have a whistleblower policy in place under this legislation, and accordingly the Commonwealth Government may also reconsider the effect of this in passing the new laws.
The proposed changes are expected to take effect on 1 July 2019
The consultation period is from 16 November 2018 to 14 December 2018. Changes to the Corporations Regulations do not require Parliamentary approval, and as such the amendments if made are expected to take effect soon, proposed to be 1 July 2019.
Disclaimer: The content of this article does not constitute legal or financial advice to be relied upon.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.