You are here:
Phoenixing is when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring its assets to another company. It’s estimated that this illegal activity costs the Australian economy between $2.9 and $5.1 billion annually.
Phoenixing significantly impacts:
Parliament has passed an Act that gives regulators such as ASIC and the ATO additional enforcement and regulatory tools to better detect and address illegal phoenix activity and to prosecute or penalise directors and others who facilitate this illegal activity, such as unscrupulous pre-insolvency advisers.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (the Act) – parts of which came into operation on 18 February 2020, with the remaining sections soon to take effect – comes as part of a comprehensive package of insolvency laws reforms put forward by the Federal Government. It amends the Corporations Act 2001 (Cth), the Taxation Administration Act 1953 (Cth) (TAA) and the A New Tax System (Goods and Services Tax) Act 1999 (Cth).
The Act introduces a number of measures which aim to combat illegal phoenixing, including:
The legislation is targeted towards those who misuse the corporate structure. It includes a number of important safeguards to ensure that the new laws do not effect honest businesses or genuine efforts to rescue a business in financial distress.
Separately, the Federal Government remains committed to introducing director identification numbers as part of its Modernising Business Registers reforms. The Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2020 (Cth) (the Modernising Business Registers Legislation) was reintroduced to Parliament in December 2019 and is awaiting further debate.
As part of the Modernising Business Registers Legislation, the Federal Government has proposed a new scheme to allocate a unique numerical identifier to each Australian director in an effort to further curb illegal phoenixing. If introduced into law, the scheme will require all current and future directors of Australian companies to confirm their identity and be issued with a Director Identification Number (DIN).
The proposed scheme will allow traceability of a director’s relationship across companies. If the proposed scheme becomes law, it will be used to track directors across failed companies to combat repeated unlawful behaviour and further target illegal phoenixing activity.
 Division 269 in Schedule 1 to the TAA
For further information and assistance on the issues raised in this article please speak to the authors, Tina van Epen, Partner, Shanna Beeton, Lawyer, Emily Gagliardi, Lawyer, or your usual Moray & Agnew contact.
Tina van Epen