Companies and their directors in Australia need to be aware of new legislative requirements, following passage by Parliament on 5 February 2020 of the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019. The bill is pending Royal Assent.
The intention of the bill is to address the practice of “phoenixing”—in general, a practice that involves the deliberate transfer of assets from a distressed company to another company (the “phoenix”) to avoid paying liabilities. The use of phoenix structures has caused government creditors, including the Australian Taxation Office (ATO), to suffer significant losses on a number of liquidations. The legislation grants broader powers to the Australian Securities and Investments Commission (ASIC), the ATO, and liquidators to address phoenix activities and to prosecute culpable directors.
“Phoenixing” is not a legal term, but describes the practice of transferring assets from a distressed company to another 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 the phoenix conducts business with the same customers, employees, and directors.
For more information, contact a KPMG tax professional in Australia
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