New legislative amendments aim to further prevent illegal Phoenixing by ensuring directors adhere to their obligations to the companies that they head. Illegal Phoenixing, which costs the Australian economy between $2.85 billion – $5.13 billion per annum, is the act of purposely liquidating and transferring the activities and assets of a company to avoid paying existing liabilities, such as debts. The passing of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth), which came into effect in February 2021, follows several directors and businesses exploiting the Government’s wound back insolvency laws during the COVID-19 pandemic.
The reforms tackle key areas to prevent Phoenixing:
- Reforms to creditor-defeating dispositions broaden illegal Phoenixing offences
- Imposing civil and criminal offences for directors, pre-insolvency advisors and other players
- Regulations to prevent directors overseeing creditor-defeating dispositions have also been expanded.
Director resignation will also be monitored closely by ASIC under the Act, as they will not be allowed to leave the company and their duties without appointing an immediate successor or backdating their resignation to ASIC, which would bring about the same outcome.
Directors will also be personally responsible for GST liabilities in certain circumstances (i.e., on luxury goods), with estimates of these liabilities to be collected and calculated by the Commissioner of Taxation. The Commissioner will also be given extra powers to ensure taxpayers adhere to all their tax obligations by paying all outstanding debts before being able to claim their tax return.