Reforms to combat illegal phoenix activity

Tuesday, 19 March 2019

On 14 March 2019, the AICD made a submission to the Senate Economics Legislation Committee on the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019.

The AICD strongly supports the Parliament’s aim of deterring and disrupting illegal phoenix activity. We acknowledge the significant harm that illegal phoenixing causes to creditors, employees and other stakeholders, along with the broader economy. It also undermines confidence in the corporate model, to the detriment of the vast majority of responsible businesses and directors.

Overall, our view remains that more proactive policing and enforcement of existing law – including breaches of directors’ duties – is critical to combatting illegal phoenixing. Accordingly, we continue to encourage the prioritisation of enforcement of relevant laws, and adequate resourcing of ASIC to facilitate this.

In terms of specific measures proposed by the government, the AICD:

  • Indicated that it did not consider it necessary to introduce a new legislative mechanism to recover property in circumstances where a company has sought to avoid creditors, as the existing provisions already available to liquidators and ASIC achieve the objects of the provision.
  • Recommended that ASIC be required to apply to a Court for an administrative order seeking the return of property which has been transferred as part of a voidable creditor-seeking disposition.
  • Did not consider it necessary to introduce a new civil penalty or criminal offence for illegal phoenixing, given that illegal phoenix behaviour will involve (at a minimum) a civil or criminal breach of directors’ duties, for which substantial penalties apply.
  • Supported the policy intent of limiting back-dating of director resignations, but offered some practical and administrative issues for further consideration.
  • Supported preventing the abandonment of companies by directors, but expressed a view that enforcement of existing laws, particularly directors’ duties, will be more effective in addressing this serious issue than the proposed amendments in the Bill.
  • Did not support enabling the Australian Tax Office (ATO) to make directors personally liable for any outstanding GST liabilities through the director penalty regime.

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