Beauty and the breach: Mecca Group fined $594,000 for failing to lodge audited financial statements

The infringement notices are part of ASIC’s enforcement approach to the financial reporting obligations set out under Part 2M.3 of the Corporations Act 2001 (Cth) (Act) and which attract substantial penalties if contravened.

Under s 292 of the Act, a financial report and a directors’ report (together, Reports) are required to be prepared for each financial year by certain companies, including:

(a) large proprietary companies[1}; and

(b) small proprietary companies[2] that are foreign controlled for all or part of the relevant financial year[3].

Importantly, for the purposes of determining whether an entity is foreign controlled, “control” has the same meaning as in Australian Accounting Standard AASB 10 Consolidated Financial Statements. Therefore, a small proprietary company with foreign ownership (whether direct or indirect) should seek advice as to whether it is captured by s 292(4) of the Act, and, if so, whether it has complied with s 319(1) of the Act in respect of each relevant financial year.

Unless an exemption applies, the Reports are required to be audited[4]. Under s 319(1) of the Act, the Reports are required to be lodged with ASIC within a prescribed time, usually 4 months after the end of the relevant financial year[5]. Failure to lodge Reports within the prescribed time is a strict liability offence and can attract a civil penalty of up to $396,000 per offence[6].

Under s 1317DAM of the Act, ASIC may issue an infringement notice to a company that has contravened s 319(1) of the Act.

Enforcement Action by ASIC

In recent years ASIC has adopted a firm stance in relation to contraventions of s 319(1) of the Act.

In 2025, ASIC issued infringement notices (at least $187,800 each) to no less than 14 companies for contraventions of s 319(1) of the Act, marking a significant uptick in its enforcement of compliance with the financial reporting obligations compared to 2024, in which ASIC issued just one infringement notice (for $187,800) for a contravention of s 319(1) of the Act. However, the increase in infringement notices issued by ASIC for contraventions of the financial reporting obligations is not surprising.

In its media release about the infringement notices issued to the Mecca Group entities (found here), ASIC reiterated that failures to comply with financial reporting obligations continue to be an enforcement priority for ASIC in 2026.

Relief from Financial Reporting Obligations

Under ASIC Instrument 2017/204 (Instrument), relief from the financial reporting obligations under Part 2M.3 of the Act is available to foreign controlled small proprietary companies that are not part of a “large group”.

For the purposes of the Instrument, “large group” means a group [7] which, for a financial year, satisfies at least 2 of the following paragraphs:

(a) the combined revenue of the group for the financial year is $50 million or more;

(b) the combined value of gross assets of the group at the end of the financial year is $25 million or more;

(c) the group has 100 employees[8] at the end of the financial year.

Importantly, when determining whether an entity is part of a “large group”, the definition of “group” captures:

(a) direct and indirect holding companies of the entity which are registered or formed in Australia or which carry on business in Australia;

(b) sibling entities of the entity (i.e. entities under common control) which are incorporated or formed in Australia or which carry on business in Australia (Sibling Entities); and

(c) all direct and indirect subsidiaries of the entity or of any Sibling Entity (regardless of where they are incorporated or carry on business).

A foreign controlled small proprietary company which is not part of a “large group” must take the following actions to rely on the relief under the Instrument:

(a) the directors of the company must resolve (within the prescribed time) that the relief be relied on in respect of the relevant financial year (this resolution must be passed annually with respect to each relevant financial year); and

(b) notice of the resolution mentioned above is lodged with ASIC using Form 384 during a prescribed period for the first financial year for which the relief is relied on (this only needs to be done once).

Court relief for failure to comply with s 319(1) of the Act

Section 1322(4) of the Act confers a power on the Court to grant, among other things, relief to a company from civil liability in connection with contraventions of the Act, including s 319(1) and, where relevant, an extension of time to file Reports with ASIC.

Addisons recently acted for a foreign controlled small proprietary company that failed to comply with s 319(1) of the Act over a number of years and had not, during that time, relied on any relief available from the financial reporting obligations under Part 2M.3 of the Act. Consequently, our client was vulnerable to adverse action from ASIC including the issue of an infringement notice or, alternatively, an action by ASIC seeking the imposition of civil penalties. As our client’s failure to comply with s 319(1) of the Act had occurred for several years, our client’s potential liability in respect of civil penalties was substantial. Accordingly, our client sought orders from the Supreme Court of New South Wales for relief from the financial reporting obligations under Part 2M.3 of the Act as well as an extension of time to take steps required to rely on relief available to our client from the obligations under Part 2M.3 of the Act.

Our client’s application to the Court was successful and our client was also able to secure relief for the sole director of the company from any personal civil liability arising from the contravention of s 319(1) of the Act.

Key Take Aways

All large proprietary companies must ensure that they lodge Reports under Part 2M.3 of the Act with ASIC on time. However, audit relief may apply in certain circumstances.

All small proprietary companies should confirm whether they are foreign controlled (the test for control is the same as in AASB 10), and:

(a) if not, they are not required to prepare or lodge Reports under Part 2M.3 of the Act; and

(b) if so, they should further confirm if they are part of a “large group” (applying the criteria and definition of “group”);

(i) if they are not part of a large group, they should further confirm if they have taken the necessary actions to rely on the relief from the financial reporting obligations under the Instrument – if so, they are not required to prepare or lodge Reports under Part 2M.3 of the Act; and

(ii) if they are part of a large group or if they have not taken all necessary actions to rely on the relief under the Instrument, they must lodge Reports under Part 2M.3 of the Act with ASIC on time – audit relief may apply.

Where a company has not complied with its financial reporting obligations under Part 2M.3 of the Act, ASIC may take adverse action by issuing an infringement notice in the amount of up to $198,000 (an infringement notice may only be issued if the breach occurred in the preceding 12 months) or by commencing an action against the company in which it seeks a penalty order from a Court. The maximum civil penalty order for a contravention of s 319(1) of the Act is $396,000 per breach.

A company that becomes aware it has not complied with the financial reporting obligations under Part 2M.3 of the Act should seek legal advice and carefully consider next steps. In particular, it may be open to that company to seek orders from the Court granting relief from civil liability and/or an extension of time to take steps to rely on the Instrument or to lodge Reports (as relevant).

If you are not sure whether you are required to lodge Reports with ASIC or if you are concerned about a failure to lodge Reports with ASIC and would like advice as to your prospects of success in seeking relief from the Court for civil liability following a contravention of s 319(1) of the Act, please contact us.