Clipping Business’s Wings: Illegal Phoenixing Reform
Phoenixing involves stripping and transferring the assets out of a company, leaving it to perish in a blaze to avoid paying its liabilities. A new company is then reborn from the ashes of the old company, starting anew and liability free, however usually with the same assets and business as the old company.
From a public policy standpoint, phoenixing activity is harmful to the economy as a whole. Creditors are often left with nothing and employees are left short-changed.
What are the reforms?
The Turnbull Government is taking steps to crack down on illegal phoenixing by introducing a reform package to address this problem. The centerpiece of the Government's reforms is the introduction of a Director Identification Number (DIN). As its name suggests, every director in Australia will be given a unique DIN. The DIN will be used by a number of Government agencies and regulators to track directors and alleged phoenixing activity, such as a director's interaction with other individuals including accountants and lawyers.
Why are the reforms important?
In addition to the introduction of DINs, the Government is considering the introduction of a number of other measures to combat alleged phoenixing activity, including:
specific phoenixing offences and prohibitions in the Corporations Act 2001 (Cth), including offences for not producing adequate books and records to a liquidator;
extending the DPN regime to include outstanding GST liabilities;
where a director lodges a change in director notice more than 28 days after the director's resignation, the director could still be liable for misconduct up to the date of lodgment;
limiting a director's ability to resign from, or abandon, a company without a replacement or winding up the company; and
limiting the voting rights of related creditors at creditors' meetings.
What should you do?
Contact us - we can help you be prepared for the potential introduction of the phoenix reforms and how they may affect you or your client.