Anti-Phoenixing Reforms are Still Circling…


This article provides an update on the progress of the Commonwealth Government’s anti-phoenixing legislation, which has been reintroduced to Parliament after lapsing earlier this year due to the Federal election. 

Earlier this year, with some fanfare, the Federal Government introduced the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 (the Bill).  It was aimed at preventing the practice of “phoenixing”, ie deliberately using the liquidation process to avoid paying company debts.  Illegal phoenixing is estimated to cost the economy billions of dollars per year.

The Bill creates a device called a Creditor Defeating Disposition (CDD), which is a sale or disposal of company property for less than market price, which stops or delays the property becoming available for creditors in the winding up of a company.

The Bill requires company officers to prevent CDDs, and imposes substantial civil and criminal penalties on company officers, and their advisors, who carry them out.  Liquidators are given additional powers to claw back property that is transferred by a CDD. Among other things the Bill also imposes additional personal liability on directors for unpaid GST owed by a company.

Much was written about these proposed reforms after the Bill was introduced to Parliament in February of this year.  Unfortunately, when Parliament was prorogued ahead of this year’s Federal election, the Bill lapsed.

It was re-introduced into Federal Parliament on 4 July 2019 and referred later that month to the Senate Standing Committee for the Scrutiny of Bills, where it remains at the moment.  The Committee has expressed some concerns about an aspect of the strict liability criminal offences proposed in the Bill, so the date from which the new laws take effect is still unclear.

The new laws will not be greeted with unbridled enthusiasm by company directors and their advisors. No-one can dispute that illegal phoenixing is a scourge on the economy that penalises honest workers and suppliers of goods and services. But the essential difference between an illegal phoenixing scheme, and a legitimate reconstruction proposal, is sometimes only a matter of timing and intent. The Bill, if passed, will make life more complicated for the directors of distressed companies and those trying to assist them.

If you are dealing with a company in financial distress, or you are in charge of one, and you need legal guidance contact Tom Darbyshire  on (08) 9321 3755.

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.