UPDATE: New Legislation concerning Illegal Phoenixing
The Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 (the Bill) recently received royal assent on 17 February 2020.
The Bill introduces new phoenixing offences in an attempt to crack down on illegal phoenix activity.
What is illegal phoenixing?
Illegal phoenixing refers to the deliberate liquidation of a company in order to avoid paying its debts (including taxes, creditors and employee entitlements), with the intention to continue the operation of the business post liquidation through another trading entity.
It can also include elements of intentional restructuring of a company in such a way that allows directors to evade their obligations to pay taxes, employee entitlements and other debts.
What are the key changes to the legislation?
- Restriction of backdating of director resignations
Upon resignation, a director must notify the Australian Securities & Investments Commission (ASIC) of their resignation within 28 days. The Corporations Act 2001 now provides that any late resignation lodgements to ASIC will be deemed effective from the date that ASIC receives the relevant notice.
It is possible for a director or company to apply to ASIC or the court to backdate the resignation, however they must be able to satisfy ASIC or the court that the director did in fact resign on the alleged date.
- Prevention of abandoned companies
In an attempt to prevent the abandonment of companies, the Corporations Act 2001 has been amended to provide that a director cannot resign in circumstances where the resignation would result in the company being left without a director.
- Extension of the director penalty regime
If a company fails to meet its pay as you go (PAYG) withholding amounts and/or superannuation guarantee charges (SGC), the Australian Taxation Office may recover those amounts personally from the director of the company (through the Director Penalty Notice regime).
The Bill has extended the power of the Commissioner of Taxation to make directors personally liable for their company’s outstanding GST liabilities, luxury car tax and wine equalisation tax, in certain circumstances.
- Introduction of new offences and civil penalties
New provisions have been introduced to target and penalise company officers that fail to prevent the company from making creditor-defeating dispositions and other persons, such as professional advisors, who facilitate a company making a creditor-defeating disposition.
If you require further advice in relation to this new legislation, please do not hesitate to contact McLaughlins Lawyers on (07) 5591 5099 and speak to one of our litigation lawyers today.
Author: Alex Hamlyn
Directors: Ian Kennedy and Sophie Pearson
Date: 12 March 2020