Company director reporting obligations, records, reports and ASIC deadlines

Being a director of an Australian company is not just a title. Under the Corporations Act 2001 (Cth), you are personally responsible for making sure the company keeps proper financial records and, depending on its size and type, prepares financial reports and lodges them with the Australian Securities and Investments Commission (ASIC). Get this wrong and you can face criminal offences, civil penalties and personal claims from liquidators, even where you never touched the bookkeeping yourself.

This guide sets out the reporting obligations that apply to company directors: the duty to keep records, the thresholds that decide whether your company must prepare and lodge financial reports, the deadlines that matter, what you must personally sign, and the consequences of falling short.

Which directors and companies must report

There are two layers to the reporting regime, and they apply to different companies.

The first layer applies to every company in Australia, regardless of size. Under s 286 of the Corporations Act 2001 (Cth), every company must keep written financial records. There is no turnover threshold, no minimum number of employees and no exemption for a one-person company.

The second layer is the annual financial reporting regime. Under s 292 of the Act, the following entities must prepare a financial report and a directors' report for each financial year:

• all disclosing entities, which broadly covers entities whose securities are traded on a financial market such as the ASX;
• all public companies;
• all large proprietary companies;
• all registered schemes; and
• all registrable superannuation entities.

Most small businesses operate as proprietary companies, so the key question is whether the company is "small" or "large". Section 45A of the Act says a proprietary company is large for a financial year if it satisfies at least two of these three tests, and small if it satisfies fewer than two:

• Revenue: consolidated revenue of $25 million or more for the year (small if less than $25 million);
• Assets: consolidated gross assets of $12.5 million or more at year end (small if less than $12.5 million);
• Employees: 50 or more employees at year end (small if fewer than 50).

The figures are consolidated, which means they include the company and any entities it controls, and part-time staff count as a fraction of a full-time equivalent. Your classification can also change from one year to the next as the business grows, so it needs to be checked each year, not assumed.

A small proprietary company only has to prepare a financial report and directors' report if one of these triggers applies (s 292(2)):

• shareholders holding at least 5% of the votes direct the company to prepare reports and send them to shareholders (s 293);
• ASIC directs the company to prepare reports, and in some cases to have them audited (s 294);
• the company was controlled by a foreign company during the year and was not consolidated into financial statements lodged with ASIC; or
• the company had crowd-sourced funding (CSF) shareholders at any time during the year.

If none of those triggers apply, the rest of the reporting part of the Act does not apply to your company. The records obligation in s 286 still does.

Keep proper financial records

Under s 286(1), the financial records your company keeps must:

• correctly record and explain the company's transactions and its financial position and performance; and
• enable true and fair financial statements to be prepared and audited.

The obligation also extends to transactions the company undertakes as trustee, which catches companies that act as trustee of a trading or unit trust. In practice, the records include invoices, receipts, bank statements, loan documents, payroll records and the other source documents behind the annual accounts.

The records must be retained for seven years after the transactions they cover are completed (s 286(2)). That matters more than directors usually expect, because a liquidator can look back years after the fact. If the company cannot produce records to explain where money went, the directors are the people who will be asked to account for it.

Hiring a bookkeeper or an external accountant does not discharge your duty. The obligation sits on the company, and s 344 of the Act separately requires each director to take all reasonable steps to comply with, or secure compliance with, the records and reporting requirements. In practical terms, that means you need enough understanding of the company's financial position to supervise the people who maintain the records, and you need to know where the records are kept and who can access them.

Prepare the annual financial report and directors' report

If your company is caught by s 292, the financial report for each year consists of the financial statements, the notes to the statements and a directors' declaration (s 295). The statements must comply with the accounting standards (s 296) and give a true and fair view of the company's financial position and performance (s 297).

The directors' declaration is where reporting becomes personal. Under s 295(4), each declaration must state whether, in the directors' opinion:

• there are reasonable grounds to believe the company will be able to pay its debts as and when they become due and payable; and
• the financial statements and notes comply with the Act, including the accounting standards and the true and fair view requirement.

The declaration must be made by a resolution of the directors, dated and signed by a director (s 295(5)). It is not a document you can leave to the accountant to sign on your behalf. The solvency statement in particular is a serious assertion: you are putting your opinion on record that the company can pay its debts as they fall due.

The directors' report that accompanies the financial report must include, under s 299, a review of the company's operations and results, details of significant changes in its state of affairs, its principal activities, any matter arising after year end that may significantly affect future operations, likely developments and expected results, and, where relevant, performance against environmental regulation.

Companies in the reporting regime must generally have their financial report audited, with the auditor reporting to members on whether the report complies with the Act (s 308). Small proprietary companies that prepare reports because of a shareholder or ASIC direction can often avoid a full audit unless the direction requires one.

Lodge your reports with ASIC on time

Preparing the reports is only half the job. Under s 319, any company that has to prepare a financial report must lodge it with ASIC. The lodgement deadlines are:

• three months: after the end of the financial year for disclosing entities, registered schemes and registrable superannuation entities; and
• four months: after the end of the financial year for everyone else, including public companies and large proprietary companies.

For a company with a standard 30 June year end, that means 30 September for disclosing entities and 31 October for public and large proprietary companies. Failing to lodge on time is an offence of strict liability (s 319(1A)), which means the company is liable even if the failure was a mistake and no one intended to breach the law.

Late lodgement also has practical costs beyond penalties. ASIC charges late fees, the company's record is marked with an outstanding obligation, and delays can complicate raising capital, selling the business or refinancing, because counterparties routinely check a company's ASIC history.

Report to your shareholders

The reporting obligations do not stop at ASIC. The financial report and directors' report are addressed to the company's members, and public companies must present the reports at their annual general meeting.

For small proprietary companies, the member trigger in s 293 is worth knowing before a dispute ever arises: shareholders holding at least 5% of the votes can direct the company to prepare a financial report and directors' report and send them to all shareholders. The direction must be given within 12 months after the end of the financial year concerned, and it can require the report to be audited. If a minority shareholder asks awkward questions, this is the mechanism they can use to force transparency.

The duty to supervise, not just sign

The reporting regime sits on top of the general duty of care and diligence in s 180 of the Act. A director must exercise their powers with the degree of care and diligence that a reasonable person would exercise in the corporation's circumstances, and s 180 is a civil penalty provision. The business judgment rule in s 180(2) gives some protection: you are taken to have met the standard for a business decision made in good faith, without a material personal interest, where you inform yourself about the subject matter to the extent you reasonably believe appropriate and rationally believe the decision is in the company's best interests.

The provision that makes reporting obligations personal is s 344. A director contravenes it if they fail to take all reasonable steps to comply with, or secure compliance with, the records requirements in Part 2M.2 and the reporting requirements in Part 2M.3. What is "reasonable" depends on the size and complexity of the business, but for most small companies it includes reading the accounts before signing, asking for cash flow information, querying anything that does not make sense and making sure lodgements are diarised.

Courts and regulators do not accept "the accountant was handling it" as an answer. Delegating the work is fine; abdicating the responsibility is not. If the records are a mess or the reports are wrong, the directors are the ones exposed.

What happens if you get it wrong

The consequences of breaching the reporting obligations are serious, and they escalate quickly:

• Criminal offences: failing to keep financial records is an offence, including an offence of strict liability (s 286(3) and (4)). A dishonest failure by a director to take reasonable steps to ensure compliance is a criminal offence (s 344(2)).
• Civil penalties: s 344 and s 180 are civil penalty provisions. ASIC can seek a declaration of contravention, pecuniary penalties and orders disqualifying a person from managing corporations.
• Personal liability for insolvent trading: if the company incurs debts while insolvent and the director knew, or a reasonable person would have suspected, that the company was insolvent, the director can be personally liable for those debts. Signing a solvency declaration in the directors' declaration does not protect you; it puts your opinion on record, and a liquidator can use the company's true financial position against you if that opinion was not honestly held on reasonable grounds.
• Practical consequences: late lodgements attract ASIC late fees, and an adverse ASIC record follows the company into fundraising, refinancing and sale transactions.

Penalties under the Act are expressed in penalty units, and the dollar value of a penalty unit changes over time. A lawyer can tell you the current value and the exposure that applies to your situation.

A reporting checklist for directors

If you are a director of a proprietary company, here is a practical checklist to work through:

• Confirm your classification each year: run the s 45A tests on revenue, assets and employees, and check for foreign control, CSF shareholders or a shareholder direction that brings a small company into the reporting regime.
• Know who prepares the reports: identify the accountant or bookkeeper responsible, and confirm who signs the directors' declaration.
• Verify the records: check that financial records are complete, accurate, retained for seven years and accessible.
• Diarise the deadlines: three months after year end for disclosing entities, four months for everyone else, and work backwards from the lodgement date.
• Read before you sign: review the financial statements and the directors' report, and ask for the cash flow and debt position before you sign the solvency declaration.
• Supervise outsourced work: get written confirmation of what your external accountant is doing, and review their output rather than signing blind.
• Get advice early if there is doubt: if the company is close to insolvent or you are behind on lodgements, do not wait for ASIC to contact you.

When you should get legal advice

For most small companies, working through this checklist is straightforward, and the accounting team can manage it. Legal advice is worth getting in these situations:

• your company is near a threshold, such as revenue approaching $25 million, because crossing it changes your obligations from one year to the next;
• you are setting up a structure with a holding company and an operating company, because reporting and consolidation obligations can attach to the group rather than just the trading entity;
• ASIC has contacted you about a missing or late lodgement, or has directed the company to prepare reports;
• the company is in financial difficulty, and you need advice on the solvency declaration, insolvent trading exposure and the steps available to you;
• you are being asked to sign a directors' declaration prepared by someone else and you are not satisfied you understand the figures.

A corporate lawyer can review your classification, check that the declaration and directors' report meet the statutory requirements, respond to ASIC on your behalf, and advise on the personal exposure that goes with the role. The cost of advice is small compared with the cost of a director personally liable for company debts.

The reporting duty directors most often miss

The duty that catches directors by surprise is not the ASIC lodgement, because accountants and software reminders usually cover that. It is the seven-year records obligation, combined with the personal duty in s 344 to take reasonable steps to make sure it is met. Directors routinely approve reports prepared entirely by external accountants without ever seeing the underlying records, and they assume that is enough. If the company later enters liquidation and the records are missing, incomplete or inaccurate, the liquidator and ASIC look at the directors, not the bookkeeper.

The first action to take this week is simple: write down where your company's financial records are kept, who maintains them, how far back they go, and when the next ASIC lodgement is due. If you cannot answer all four questions, get advice before the end of the financial year. That single review will tell you whether your reporting obligations are under control or whether you are carrying personal risk you did not know about.