A recent decision of the Federal Court in Brisbane has affirmed the primacy of the statutory obligation of large proprietary companies to lodge financial reports with ASIC.

Background

Under the Corporations Act (the Act) a private company qualifies as a large proprietary company if it satisfies 2 or more size tests – consolidated revenue of $25 million or more; consolidated gross assets of $12.5 million or more; group employees of 50 or more. The Act requires all large proprietary companies, unless grandfathered, to lodge their financial reports with ASIC for public inspection. A large proprietary company can apply for relief from this obligation, but ASIC can only grant relief if it is satisfied that special circumstances exist, and typically this requires the company to show that complying with the statutory obligation would impose unreasonable burdens, such as competitive disadvantage.

Company

The Federal Court confirmed an ASIC decision to refuse financial reporting relief for Dynamic Supplies Pty Ltd (Dynamic Supplies), a large proprietary company.

Dynamic Supplies is privately owned and a major distributor in the Australian printer consumables market. The company operates nationally, employs 120 people, and recorded revenue of approximately $222 million in the 2008/2009 financial year. From 2002, Dynamic Supplies qualified as a large proprietary company under the Act but failed to lodge financial reports with ASIC.

An ASIC compliance program identified Dynamic Supplies as a large proprietary company and asked the company to immediately lodge the outstanding financial reports.

Decision

In September 2008, Dynamic Supplies applied to ASIC for an exemption from the financial reporting requirements, but failed to satisfy ASIC that they would suffer competitive disadvantage as a result of lodging financial reports, so ASIC refused the relief. ASIC also considered that the potential benefit to users of the financial reports outweighed the claimed detriment that would flow to Dynamic Supplies.

In November 2008, Dynamic Supplies appealed ASIC’s decision to the Administrative Appeals Tribunal (AAT). In December 2009, the AAT affirmed ASIC’s decision. In January 2010, Dynamic Supplies appealed to the Federal Court against the AAT decision.

On 30 July 2010, the Federal Court ruled that the AAT had proceeded correctly in reviewing the matter. The Federal Court dismissed the appeal and ordered that Dynamic Supplies pay ASIC’s costs of the appeal.

Outcome

The decisions of the AAT and the Federal Court affirm ASIC’s approach to the requirements of the Act. Companies considering applying for financial reporting relief should consider these decisions.

After the Federal Court decision was handed down, Dynamic Supplies lodged all outstanding financial reports dating back to 2002.