Government consults on anti-phoenixing laws

Last week, the government released draft legislation for a list of reforms to combat illegal phoenixing, with Minister for Revenue and Financial Services Kelly O’Dwyer saying they will deter and disrupt the core behaviours of phoenix operators.

Ms O’Dwyer said the package will give regulators better tools to deter and disrupt illegal phoenix activity, and that it will:

- Create new phoenix offences to target those who engage in and 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 on the hook, with 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. This tool will be particularly important where a liquidator is complicit in or turning a blind eye to illegal phoenix activity. These supporting measures will assist with the quick and efficient recovery of property, for the benefit of all employees and creditors.

- Prevent directors from backdating their resignations to avoid personal liability;

- Prevent sole directors from resigning and leaving a company as an empty corporate shell with no directors;

- Restrict the voting rights of related creditors of the phoenix company at meetings regarding the appointment or removal and replacement of a liquidator;

- Make directors personally liable for GST liabilities, as part of extended director penalty provisions;

- Extend the ATO's existing power to retain refunds where there are outstanding tax lodgements.

In response, the Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the reforms will help minimise the impact on small businesses at the hands of Australia’s phoenixing.

She referred the focus on company directors within the reforms as “essential”, saying that directors won’t be able to transfer company assets that affect creditor payments, and they won’t be able to backdate resignations to avoid liability or leave the company as an empty corporate shell.

“Of particular significance, pre-insolvency advisers and other facilitators will be on the radar and penalised for dodgy company asset transfers.

“Holding the facilitators accountable will reduce access to the specialist knowledge required to deliberately liquidate an entity with the intention to operate and profit through other trading entities.”

Ms Carnell also noted that, coupled with the proposed statutory trusts model and the director identification number, there will be genuine protection for subcontractors.

“Currently, if there is any money left, secured creditors come first, the employees are paid wages owing out of the federal government’s Fair Entitlement Guarantee and the subcontractors are left with nothing,” she said.

Submissions to the consultation close on 27 September.