The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 (Cth) passed both houses of Parliament on 5 February 2020. After receiving Royal Assent on 17 February 2020, the provisions of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) relating to phoenixing offences and improving the accountability of resigning directors are now in force.
As the name suggests, the Act targets illegal phoenixing – the practice of creating a new company to continue the business of an old company that has been deliberately liquidated to avoid the payment of outstanding debts. It amends the Corporations Act 2001 (Cth) by introducing new phoenixing offences that prohibit creditor-defeating dispositions of company property. The offences penalise those who engage in, fail to prevent or facilitate such activity (including pre-insolvency advisers), and liquidators are able to recover compensation from officers for the damage suffered by the company’s creditors.
Liquidators can apply to the Court or to ASIC for orders voiding a creditor-defeating disposition of company property. Creditor-defeating in this context is a disposition of company property for less than its market value (or the best price reasonably obtainable) that has the effect of preventing, hindering or significantly delaying the property becoming available to meet the demands of the company’s creditors in a winding-up. An application to ASIC, which has new powers to make administrative orders for the recovery of company property, may be a more cost-effective process for unfunded liquidations.
These amendments do not apply to legitimate business restructures and transactions.
The Act also introduces changes to the New Tax System (Goods and Services Tax) Act 1999 (Cth) and Taxation Administration Act 1953 (Cth) which enable the Commissioner of Taxation to collect estimates of anticipated GST liabilities, including luxury car tax and wine equalisation tax liabilities. The Commissioner now has powers to recover unsatisfied liabilities to pay assessed net amounts and GST instalments through the director penalty regime. As such, for the first time company directors are personally liable for unpaid GST.
A further weapon in the Commissioner’s arsenal is the capacity to withhold tax refunds where a taxpayer has failed to lodge a return or provide information that may affect the amount of any refund. These changes will commence on 1 April 2020.
Liquidators will benefit from their additional powers under the Act. Further, the difficulty faced where the company under their control has insufficient funds to bring court proceedings may be solved now that ASIC can take action to recover property instead.
Company directors are now obliged to take active steps to prevent creditor-defeating dispositions, or risk being subject to criminal or civil penalties. The amendments also prohibit the resignation of all directors (i.e. preventing a situation where a company is left director-less) and prevent the backdating of director resignations.
This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.
Justin Sharman, Principal in our Disputes Team
Direct Telephone: +61 8 8210 2279