Kerry Stokes

Jan 20, 2021 | Secret Rich List

Top 200 Rich List (2020)No. of Dark Companies: 3
Political Donations since FY 1998-99
Rank: 10North Aston Pty LtdLabor Party: $297,583
Wealth: $6.26bAustralian Capital Equity Pty LtdCoalition: $444,696
Wealth (2019): $5.69bWestrac Holdings Pty LtdIndependent: $174,460
YoY wealth change: 10.2%Total: $916,739

Billionaire Kerry Stokes controls most of his vast media and mining empire through Dark Companies which are exempt from normal reporting requirements.  His ASX-listed investment vehicle Seven Group Holdings – controlled by an exempt company on the Secret Rich List – holds a controlling stake in Seven West Media, home of Channel Seven and the West Australian print media. 

The 1995 grandfathering provision is not the only exemption Mr Stokes has enjoyed in recent history. During the coronavirus outbreak in April last year, he and his wife were exempted on medical grounds from mandatory 14-day hotel quarantine, returning from a US ski trip in their private jet.

Stokes began his career in property development during the 1960s and 1970s. However, it was through diverse investments and acquisitions in media, mining and construction equipment where he was to achieve billionaire status. He received an Order of Australia in 1995.

Outside his investment operations, Stokes is most notably chairman of the Australian War Memorial. He was subject to a backlash in November last year for promising to financially support Australian SAS soldiers accused of war crimes in Afghanistan. The money would be sourced from the SAS resources fund which “among other things, could cover legal costs.” An action which is deemed a misappropriation of the funds.

Stokes’ business operations are primarily conducted through his majority-owned investment vehicle Seven Group Holdings (SGH).

Significant assets of the listed company include Australia’s largest equipment hire organisation, Coates Hire, operations in the energy sector through SGH Energy and a 28.5% stake in ASX-listed company Beach Energy, large-scale equipment dealer WesTrac and a 40.2% stake in Seven West Media (ASX-listed). SGH also bought a 20% stake in building materials giant Boral (ASX-listed) in 2020.

WesTrac is one of the largest Cat Equipment dealers in the world with more than 3,000 employees. Its immediate parent is WesTrac Holdings Pty Ltd, a Dark Company owned by Stokes.

What’s more, Stokes holds a majority stake (61.1%) in SGH through his various related entities. One of which is his Dark Company North Aston Pty Ltd with two separate stakes in the listed company at 17.84% and 15.79% respectively. These are the two highest stakes held by any company in SGH.

His other Dark Company Australian Capital Equity Pty Ltd (ACE) is also part of the related entities which make up for the 61.1% stake. ACE owns the Napier Downs cattle station in Western Australia and is the parent of Wroxby Pty Ltd which holds a controlling stake in Capilano Honey and BCI Minerals (ASX-listed), as well as significant shares in Saracen Minerals (ASX-listed).

ACE’s parent company is Clabon Pty Ltd which sees famous businessman David Gonski and former West Australian Premier Richard Court sitting on the board of directors.

ATO tax transparency data from financial years 2013/14 to 2018/19 shows SGH earned a total income of $22.2 billion yet only paid $120.8 million in tax. For three of these six years, SGH paid $0 in tax.

Stokes’ majority stake in SGH means that all of its investments and acquisitions listed above are primarily controlled by a Dark Company.

How we compiled the Secret Rich List

What are they trying to hide? This is the driving question behind our ‘Secret Rich List’ project at Michael West Media.

Our aim is to shine the spotlight on the 1,119 large proprietary companies that continue to enjoy a privileged exemption from having to lodge financial reports to the Australian Securities and Investments Commission (ASIC).

An exemption from any new law or regulation is commonly referred to as ‘grandfathering’. In this case, the exemption from having to lodge audited accounts effectively creates two classes of Australian citizens; large proprietary companies that have to comply with government legislation, and the remaining 1,119 companies that by definition are required to do the same, yet enjoy an antiquated free pass from full public transparency.

What was issued as a “temporary measure” by the government of Paul Keating in 1995 has placed these companies above the law for more than 25 years. We believe it is in the public interest to put an end to this outdated government legislation once and for all.

Although ASIC  defines the companies enjoying the exemption as as grandfathered large proprietary companies, we prefer the term ‘Dark Companies’; it is a more fitting description of old wealth empires whose financial accounts are cloaked by this provision, shadowed from the public eye.

History behind the 1995 grandfathering exemption

This grandfathering regime was issued in response to The First Corporate Law Simplification Act 1995, a 1995 amendment to the Corporations Law at the time.

Before this amendment, whether a company had to prepare and lodge financial accounts with ASIC was determined by whether they were an exempt or non-exempt proprietary company (exempt meant the company did not have to publish accounts).

 ASIC defines exempt proprietary companies as:

“companies where there was no direct or indirect public ownership; that is, they were essentially owned by private individuals. The companies were not required to lodge financial reports where those financial reports were subject to audit and sent to members.”

 

Under the First Corporate Law Simplification Act 1995 the measure of whether a company had to lodge financial accounts with ASIC changed from the reporting entity test (exempt/non-exempt system) to what became known as the ‘small/large test’.If the company was considered a ‘large’ proprietary company, then it must lodge its accounts.

As of the law in 1995, an Australian proprietary company was ‘large’ if it satisfied two of the following three criteria:

  • consolidated gross assets of $5 million or more;
  • consolidated gross revenue of $10 million or more;
  • the company and the entities it controls (if any) have more than 50 employees at the end of the financial year.

The criteria for the small/large test has since been updated.

The new legislation meant that a significant number of previously exempt organisations now had to prepare and lodge their financial accounts.

The explanatory memorandum for the Bill notes: “To avoid disrupting established commercial arrangements, those existing exempt proprietary companies which have their annual accounts audited, which are large and which elect to continue operating under the existing rules, will not need to lodge their accounts with [ASIC].”.

Thus was born the concept of the grandfathered list - or Secret Rich List as we like to call it. In 1995, it was home to more than 2,000 large proprietary companies.

Significant Global Entities

Some 12 of the 1,119 Dark Companies are considered ‘significant global entities’ (SGE). An entity becomes an SGE if it fits at least one of the two following criteria:

  • a 'global parent entity' whose 'annual global income' is A$1 billion or more,
  • a member of a group of entities consolidated (for accounting purposes) where the global parent entity has an annual global income of A$1 billion or more.

These entities must prepare and lodge general purpose financial accounts with ASIC. This requirement is no different for the 12 SGEs on the Secret Rich List as their SGE status overrides the grandfathering exemption.

 

MWM Methodology

Using both the ASIC and Australian Electoral Commission (AEC) databases we have conducted more than 5,000 searches and counting.

Through the ASIC searches we have been able to collate the necessary information for every company on the grandfathered list, ranging from company directors, shareholders (both persons and organisations), a company’s auditor and much more. This has all been incorporated into our database, which is designed to map out these Dark Companies and tackle our driving question.

We also used the AEC database to generate an extensive list of political donations from these Dark Companies that date from the 1998-99 financial year to the present. We have designed a separate database for these figures, listing political donations from the entity itself, its directors and/or its shareholders. Each donation has been separated into recipient categories to better display the amounts funnelled to the Liberal and Labor parties and their constituencies.

The donations help indicate why the exemption, which ensures such a lack of transparency, has stood the test of time despite numerous attempts over the years from both sides of Parliament, the cross bench, the Greens, Treasury, corporate regulator ASIC and a joint parliamentary inquiry, which have all called for the exemption to be abolished. Both databases created by Michael West Media complement each other to bolster the narrative of the stories that follow.

In a similar approach to our Q.E.D. and Revolving Doors series, we will be releasing a profile each day that highlights directors of these Dark Companies, many of whom appear on the 2020 Australian Financial Review Rich List.

The ‘Secret Rich List’ project will provide considerable evidence to shore up the next attempt to repeal the grandfathering exemption, which Independent Senator Rex Patrick is scheduled to move before the Senate in early 2021.

If you have information about this or other entries in the Secret Rich List, contact us in full confidence via ProtonMail - click here.

Rortswear and ClimateCards

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