As a Builder, do you need to Lodge Financial Reports with ASIC?

Newpoint Advisory specialises in builder delivery risk mitigation through detailed financial analysis. This enables financiers, developers and builders to make informed credit and investment decisions to manage risk and maximise financial performance.

Following the release of Newpoint’s 2020 Tier 2 Builder Metrics we have received repeated inquiries with the following common theme:

• Why is Builder ‘X’ not included the 2020 Builder Metrics?
• Can you access Builder ‘X’ financials, and do they lodge accounts?
• What are the requirements for lodging financial accounts, who and when?
• Do I (Builder) need to lodge financial accounts with Australian Securities Investments Commission (ASIC)?

As a result, we thought it would be useful to explain the who and why of lodging Financial Reports with ASIC. Please note this article focuses on non-listed entities. Listed entities on a public exchange would be subject to additional reporting requirements stipulated by the specific exchange, i.e. the Australian Stock Exchange.

ASIC’s Guidance

ASIC’s advice can be found here. It states:

“Generally, companies must lodge Financial Reports where:

• There are substantial sums of money involved;
• The general public has invested funds with the company; or
• The company exists for charitable purposes only and is not intended to make a profit.”

The Corporation Act 2001 (the Act)

Section 292 of the Act specifies which entities are required to prepare Financial Reports with ASIC. It delineates between Proprietary companies, Public Companies and Registered Schemes. Lodgement of these Financial Reports with ASIC is covered under Section 319 of the Act.

What does this mean for different sized builders/companies?

Private Builders/Companies

The requirements to lodge Financial Reports depends on the company’s size. A proprietary company would be classified as ‘large’ if it satisfies at least two of the below criteria. Conversely, if it does not, it would be classified as ‘small’.

Newpoint’s Builder Tier System suggests that Tier 2 and Tier 3 builders are usually defined as ‘Large Proprietary Companies’ and are required to lodge their Financial Reports.

There are some instances where ‘Small Propriety Companies’ may be required to lodge their Financial Reports and information can be found here.

However, a ‘Large Propriety Company’ is required to lodge its Financial Reports with ASIC and these Reports must be audited by an External Auditor.

Public Builders/Companies

Public companies are able to raise equity directly from the public via the issuing of shares. For this reason, a public company is always required to lodge their Financial Reports with ASIC and these Reports must be audited by an External Auditor.

As always, there are some exceptions to the rules and ASIC may provide relief in some cases.

Failure to Lodge Accounts

Directors may be subject to a civil penalty if they contravene this section of the Act. If a Court is satisfied that a person has contravened the provisions it may order a person to pay the Commonwealth a monetary penalty of up to $200k.

Further to this, if the contravention is deemed to be dishonest, penalties imposed may include imprisonment and/or pecuniary penalties. In this case, the maximum pecuniary penalties for individuals are the greater of 4,500 penalty units ($945k); or if the Court can determine – three times the benefit derived from (or detriment avoided by) the contravention. These are likely to apply in more serious situations.

We continue to see companies in all industries failing to meet their reporting obligations and would implore you to revisit this element of your business as we come to the end of the 2020 financial year.