News

Reforms to combat illegal phoenix activity

August 30th, 2018

Illegal phoenix activity is a means by which unscrupulous company directors seek to avoid payment of a company’s creditors. It typically involves the transfer of a business (or assets) from one company shell to another, without properly recognising the value of the assets transferred. It leaves company creditors, often including employees, with claims which cannot be satisfied from company assets.

In the 2018/2019 budget, the Commonwealth Government announced a package of reforms to the corporations and tax law to combat illegal phoenix activity. The government has now released an exposure draft of proposed legislation. The proposed reforms include:

1. introducing new phoenix offences which target both those who conduct and advisors who facilitate the illegal phoenix transactions including:

1.1. making it an offence for company directors to engage in creditor defeating transfers of company assets;

1.2. making pre-insolvency advisors and other facilitators of illegal phoenix activities liable to both civil and criminal penalties; and

1.3. extending and enhancing the existing liquidator “callback” powers;

2. preventing directors from resigning in some situations;

3. extending Director Penalty Notice provisions to include GST and related liabilities; and

4. restricting the voting rights of related creditors at meetings considering the appointment or removal of an external administrator.

An exposure draft of the proposed legislation has been released for public consultation. The final text of the reforms is yet to be revealed. The draft legislation can be accessed here.

For more information, please contact partner Tim McGrath.