Common ASIC lodgement mistakes

Navigating ASIC compliance can be complex, particularly for accountants, company founders and advisors juggling structuring decisions, investor onboarding and governance.

Our Commercial lawyers have seen a series of common, but costly, mistakes that can lead to penalties and invalid company actions. In this article, they discuss the top missteps, what they mean and how to fix them before they impact your deal or company structure.

1. Pre-investment share split vs share issue

The mistake: To provide an incoming investor with their desired percentage, we often see advisors issue new shares for nominal value to existing shareholders, rather than splitting existing shares on issue into the desired share number. Frequently, at the same time or within a short period afterwards, an investor is then issued shares for a substantially higher share issue price reflecting the current value of the company.

A share issue for less than market value can trigger tax implications by potentially creating a value shift between shareholders. A share split of existing shares on issue doesn’t alter the original issue price (that price is just split between a different number of shares) and enables you to alter the total number of shares on issue in the company, such that the investor’s allotment reflects their agreed percentage, without inadvertently causing headaches for existing shareholders.

The fix: Firstly, reference should be made to the company’s constitution to ensure the share split is within power and the company will then need to pass a share subdivision resolution. Following the passing of a resolution, a Form 2205 noting that the shares are to be subdivided can be lodged, and the share register should be updated to reflect the new share structure. The desired number of shares can then be transferred and/or issued to the incoming investor in the usual way and notified by way of Form 484. It is important to always check the commercial and tax treatment before choosing between issuing or splitting shares.

2. Using the wrong form to correct ASIC errors

The mistake: We often see advisors attempt to correct an error in a previously lodged ASIC document by lodging a new Form 484. Frequently this doesn’t reflect what has actually occurred. Once a lodgement has been accepted, the only appropriate way to fix it is to withdraw the documents that were lodged or lodge a Form 492 correcting the error in the previous lodgement. Lodging a subsequent Form 484 to correct the issue means that ASIC records will not reflect what actually occurred on the company register. This often becomes an issue on a future exit or introduction of an investor as due diligence usually focusses on the correctness of the company register.

The fix: To formally withdraw an incorrectly lodged document, you must use a Form 106 – Request to withdraw a lodged document. You will need to provide details of the document to be withdrawn as well as a valid reason as to why this should be withdrawn. ASIC may also require supporting documentary evidence. If you are looking to correct a previously lodged document that has been fully processed by ASIC you will need to use a Form 492 – Request for correction. You will need to again provide details of the document to be corrected, as well as details of the correction required. If a date of change is being corrected, then supporting documentation will need to be attached.

3. Overlooking land rich company issues when changing trustees or Company shareholding

The mistake: Replacing a trustee company or otherwise altering shareholding for a company that has landholdings without checking whether the company is “land rich” can trigger significant landholder duty implications. In Queensland, Landholder duty is triggered when a person makes a ‘relevant acquisition’ in a company that holds land in Queensland having an unencumbered value of $2 million or more. Generally, a ‘relevant acquisition’ is 50% for a private company, although interests can be aggregated. Exemptions may be applicable where the change of shareholding is purely as a result of a change of trustee.

Keep in mind that, in Qld, if you acquire shares in a corporate trustee (or a company that holds shares in a corporate trustee), you may also have to pay corporate trustee duty unless an exemption applies.

Bearing in mind most company Constitutions pre-condition approval of transfers on stamping, this affects the validity of the relevant action and any subsequent notification to ASIC.

The fix: Prior to changing trustees or shareholdings in a company, you should seek advice on the relevant duty implications to ensure compliance and avoid unexpected costs. Additionally, you may need to apply for duty relief or lodge declarations with the relevant revenue office.

4. Appointing directors without consent

The mistake: A director’s appointment is sometimes approved and notified to ASIC (Form 484) without obtaining the individual’s prior written consent. This is in contravention of section 201D of the Corporations Act 2001 (Cth) (the Act) and risks penalties. Companies should ensure they don’t have practices where they send the ‘appointment and consent’ documents to a director after their appointment has already been approved by the Company.

The fix: Always obtain a consent to act as director before approving the director’s appointment and lodging a Form 484 to notify ASIC of the appointment. This also ensures that the Board receives notice from the incoming director in accordance with sections 191 and 192 of the Act in relation to any material personal interest in a matter relating to Company affairs before making the decision to appoint the director.

5. Not whitewashing financial assistance

The mistake: Where the Company funds or facilitates the purchase of its own shares (e.g. provision of security over Company assets to facilitate the funding of the share purchase price whether from an external funder or vendor’s terms), this can amount to financial assistance. Financial assistance is generally prohibited unless “whitewashed” by way of shareholder approval and proper notifications to ASIC.

The fix: It is important to ensure that Part 2J.3 is followed which may require notices and general meetings to be called and held as well as lodgements with ASIC within the prescribed timeframes.

6. Transferring instead of issuing shares

The mistake: Transferring existing shares to an investor instead of issuing new shares provides funds to the shareholder, not the Company and triggers a capital gain for the selling shareholder. We sometimes see a share transfer documented when funds were intended to be paid to the Company. This can derail capital raising intentions and misrepresent the purpose of funds received. If an individual shareholder is looking to sell shares and receive the proceeds, then a share transfer would be appropriate. However, a share transfer will not provide financial benefit to the Company directly and issuing shares are the more appropriate method of providing funds to the Company in exchange for equity in the Company.

The fix: You should ensure that you are issuing new shares to investors (not transferring existing ones) when funds are intended to be used by the Company. You will need to prepare the correct resolutions, ensure any pre-emptive processes are followed under any constituent documents and lodge a Form 484 showing the allotment and relevant capital increase. It is also important to consider the tax and duty implications here along with any disclosure issues under the Corporations . Notably, under section 723 of the Corporations Act, a disclosure document may be required for the issue or transfer of securities unless the offers of securities are exempt from disclosure requirements, such as to where sophisticated investors.

Key takeaways

To avoid penalties and delays when restructuring, raising capital or negotiating a deal, it is essential to ensure the correct processes are followed and properly notified to ASIC. Compliance can be confusing and following the wrong process may have many different tax and legal implications. Consequently, it is important to obtain legal and financial advice before taking any steps to progress your deal or restructure.

Need help?

Contact our experienced Commercial lawyers to help assist with structuring and advising on your proposed transaction.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.