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New legislation increases accountability of directors

New legislation increases accountability of directors

David Morris and Bree Taylor discuss the new legislation in its bid to combat illegal ‘phoenixing’.

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Companies and their directors must be familiar with new legislative requirements, following the passage of the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 through Parliament on Wednesday. The Bill is now awaiting Royal Assent.

The Bill was introduced in a bid to more efficiently combat the practice of ‘phoenixing’, which has caused government creditors, including bodies such as the Australian Taxation Office (ATO), to suffer significant losses on a number of liquidations which utilised an illegal “phoenix” structure. The Bill grants broader powers to the Australian Securities and Investments Commission (ASIC), the ATO and liquidators in an attempt to help curtail illegal phoenix activities and to prosecute culpable directors.

Although not a legal term, phoenixing is generally used to describe a practice that involves the deliberate transfer of assets from a distressed company to another company (the ‘phoenix’) to avoid paying liabilities. The distressed entity is subsequently liquidated by the directors, who then continue to run the business through the phoenix entity – a company that “rises from the ashes” of the distressed entity – often with the same customers, employees and directors. A 2018 report by the Inter-Agency Phoenix Taskforce estimated that these illegal phoenixing activities result in a cost to the Australian economy of approximately $2.85 - $5.13 billion per annum.

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