The Federal Government looks to be set to finally disrupt the illegal phoenix activities of company Directors and rogue pre-insolvency advisors, who have for years used legislative loopholes to defeat creditors by transferring assets from insolvent companies to new “phoenix” companies with the sole purpose of preventing creditors from being paid. The legislation is still in draft but contains some valuable tools if passed. Stay tuned for updates.
The proposed reforms include a range of measures to both deter and disrupt illegal phoenixing and more harshly punish those who engage in and facilitate this illegal activity.
The exposure draft legislation includes reforms to:
- introduce new phoenix offences that target those who conduct and those who facilitate illegal phoenix transactions;
- It will now be an offence for company directors to engage in creditor‑defeating transfers of company assets that prevent, hinder or significantly delay creditors’ access to those assets.
- Pre-insolvency advisers and other facilitators of illegal phoenix activities will also be liable, as there will be a separate offence for any person who procures, incites, induces or encourages a company to make creditor‑defeating transfers of company assets.
- These will be both criminal and civil offences, attaching the highest penalties available under the law.
- The offences will be supported by an extension of the existing liquidator asset clawback avenues to cover illegal phoenix transactions. ASIC will also receive a new regulatory tool to recover property that has been transferred under an illegal phoenix transaction.
- prevent directors from backdating their resignations to avoid personal liability;
- prevent a sole director from resigning and leaving a company as an empty corporate shell with no director;
- extend the director penalty provisions to make directors personally liable for their company’s GST and related liabilities;
- expand the Australian Taxation Office’s existing power to retain refunds where there are tax lodgments outstanding;
- restrict the voting rights of related creditors of the phoenix operator at meetings regarding the appointment or removal and replacement of an external administrator.
The legislation is tightly targeted at those who misuse the corporate form, while minimising any unintended impacts on legitimate businesses and restructuring.