New bill to ground illegal phoenixing

  • Although not defined in legislation, illegal phoenix activity involves the deliberate stripping and transferring of assets and funds from one company to another company to avoid paying liabilities.
  • The bill introduces the concept of a ‘creditor-defeating disposition’ and this concept is a cornerstone of the proposed amendments.
  • If passed into law, all directors and company advisers will need to be aware of their new obligations and how they must comply to avoid potentially harsh penalties.

Phoenix kite in the sky

In the 2018 federal budget, the government announced that it proposed to reform relevant legislation so that regulators could more efficiently curtail phoenix activity. 

These announcements have now been acted upon and on 13 February 2019, the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 (bill) was introduced into parliament. The proposals in the bill include giving ASIC, liquidators, and the ATO new powers to help deter and disrupt illegal phoenix activities and prosecute culpable directors and associated persons. 

What is phoenixing?

As a basic and broad definition, illegal phoenix activity involves the deliberate stripping and transferring of assets and funds from one company to another company to avoid paying liabilities, such as tax or superannuation. The original entity is liquidated by the directors, who then recommence with the same or very similar business through a new corporate entity — often using the same customers and employees.

This article is exclusive to Governance Institute members and subscribers.

To read the full article…

or Become a member