Illegal Phoenix activity is when a new company is created to continue the business of an existing company that has deliberately liquidated to avoid paying outstanding debts, including creditors, taxes and employee entitlements. Throughout February to April 2020, the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 was passed by Federal Parliament and the relevant provisions were rolled out. In short, the reforms give ASIC, liquidators and the ATO new powers to help deter and disrupt illegal phoenix activities, and prosecute culpable directors and associated persons.

The reforms address four key areas. These are:

  • The introduction of new phoenixing offences, with civil penalties and criminal contraventions by directors, pre-insolvency advisors and other facilitators, to prevent creditor-defeating dispositions.
  • Prohibiting directors from improperly backdating resignations, or ceasing to be a director, when this leads to leaving the company without a director.
  • The Commissioner of Taxation will now have the power to collect estimates of anticipated GST liabilities. Company directors will now be personally liable for a company’s GST liabilities in certain circumstances.
  • The Commissioner of Taxation is now authorised to retain tax refunds where a taxpayer has failed to lodge a return or provide information which may affect the amount that the Commissioner refunds.

With illegal phoenix activity costing the Australian economy between $2 – $5 billion per annum, these new laws are a welcome inclusion. Given the extent of the penalties for non-compliance (including criminal sanctions), companies, directors and relevant facilitators (such as insolvency practitioners, lawyers and accountants) should pay very close attention to these changes and act accordingly.

With the current COVID-19 pandemic, many Australian businesses are suffering and finding it tough to stay afloat. It is likely that many companies might look to restructure or seek to find creative alternatives to help keep their business afloat. If you are in this position, it is imperative you seek expert advice from reputable insolvency practitioners and lawyers. Rankin Business Lawyers has extensive experience in restructuring and insolvency practice, with close working relationships with several insolvency firms around Australia. We urge you to get in touch with us for a confidential chat – we are here to help.

Francine Clancy
Senior Associate