The Disney/Murdoch Connection

Feb 9, 2021 | Secret Rich List

Top 200 Rich List (2020)No. of Dark Companies: 3
Political Donations since FY 1998-99
Rank: 22 (Lachlan Murdoch)Carlholt Investments Pty. LimitedLabor Party: N/A
Wealth: $3.76bCarlholt (A.C.T.) Pty. LimitedCoalition: N/A
Wealth (2019): $3.62bKarlholt Pty LimitedIndependent: N/A
YoY wealth change: 3.9%Total: N/A

Deep inside the Murdoch family’s global media empire were three Dark Companies exempt from lodging financial accounts in Australia. That was until the $90bn sale to Walt Disney Company in 2019. This is a classic case of Dark Companies being traded between empires.

Following his father’s death in 1952, Rupert Murdoch carried out the duties of his father’s company, News Limited, at 21 years of age. The family’s only significant asset at the time was a small Adelaide newspaper called The News.

Throughout the 1950s and 1960s, Murdoch would revitalise the once failing News Limited business into an aggressive expansion operation through acquisitions of struggling papers such as Perth’s Sunday Times, to more formidable tabloids including Sydney’s The Daily Mirror.  

The man from Adelaide made his big move overseas when he bought the UK’s News of the World in 1968 and then The Sun the following year. 

These acquisitions would lay the foundation of what is now the global News Corporation empire, through which Murdoch forged powerful media monopolies in Australia, Britain and the US.

Rupert Murdoch first entered the US purchasing San Antonio Express-News in 1973, followed notably by the New York Post in 1976. His involvement in the Fox Network began in 1985 when he acquired a 50% stake in 20th Century-Fox Film Corporation for $325 million in cash. At the time, the sale meant that “Mr Murdoch’s News Corporation Ltd, with assets of more than $2 billion at the end of 1984, will have spent $1.6 billion in the last 12 months to acquire 12 trade publications … total ownership of Fox [and six media stations]”.

His purchase of Fox in 1985 meant that Rupert would have to become a citizen of the United States in order to legally operate his television network.

With a foothold in America, Murdoch would eventually move his News Corporation empire from Australia to the US in 2004. This restructure would see the involvement of the Carlholt Group which contained the family’s three Dark Companies. The move offshore gave Carlholt a 100% stake in the News Corporation (Australia) group.

Murdoch-owned media operations in Australia, including The Australian and The Daily Telegraph, were therefore directly controlled by a group which held three Dark Companies.

Outside the Fox/News Corp empires, another major Australian asset is Lachlan Murdoch’s Nova Entertainment which owns radio stations including Nova and Smooth FM. The company operates under a complicated structure which was originally intended to dodge as much tax as possible. The structure, involving preference shares and royalty payments to its parent companies listed as “exclusive use fees” saw the company generate a $4.2 million profit for its owners in 2010 despite reporting a $7.5 million loss for the year.

Lachlan also made an unsuccessful joint-bid for the struggling Ten Network with fellow Secret Rich-Lister Bruce Gordon in 2017. The court ruled the bid “had not been properly considered” owing to late submissions and the pair discontinuing roles as guarantors for Ten. It instead awarded the network to US media giant CBS.

In the wake of the infamous 2009 phone hacking scandal involving Murdoch’s UK scandal sheet News of the World, the paper was shut down and cost the empire $1.6 billion. The News Corporation name had been tarnished in the reporting sphere and in need of a new look.

This prompted a spin-off of News Corporation into two divisions in 2013: News Corp, handling its publication operations including The Wall Street Journal, The Times in London as well as News Corp Australia, and 21st Century Fox, operating media and entertainment assets such as Fox News, National Geographic, 20th Century Fox studios and Endemol Shine Group.

The restructure meant the Carlholt Group of Dark Companies was now owned by 21st Century Fox. This changed however in 2019 when the Walt Disney Company purchased 21st Century Fox for $US71 billion, a deal which the Murdoch family profited from greatly, with Rupert’s six children netting $US2 billion of Disney stock each, and dividends worth $US40 million per year.

It also means Disney now owns three Dark Companies on Australia’s Secret Rich List.

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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