Legislation to combat illegal phoenix activity

The Government has announced a package of reforms to tackle illegal phoenix behaviour.

By way of background, phoenixing occurs when the controllers of a company strip the company’s assets and transfer them to another company, to avoid paying the original company’s debts.

The proposed measures will deter and disrupt the core behaviours of phoenix operators by:

• creating new criminal and civil offences, attaching the highest penalties available under the law, to target those who engage in and facilitate illegal phoenix transactions;
• preventing directors from backdating their resignations to avoid personal liability;
• preventing sole directors from resigning and leaving a company as an empty corporate shell with no directors;
• restricting the voting rights of related creditors of the phoenix company at meetings regarding the appointment or removal and replacement of a liquidator;
• making directors personally liable for GST liabilities, as part of extended director penalty provisions; and
• extending the ATO’s existing power to retain refunds where there are outstanding tax lodgments.

A new Phoenix Hotline is also being established, which will make it easier to report suspected phoenix behaviour.

According to the Government, the proposed measures are tightly targeted at those who misuse the corporate form, while minimising any unintended impacts on legitimate business restructuring.  Whether they will be able to achieve this goal or not is yet to be seen…