Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020

Overview

The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 was enacted by the Parliament of Australia to address the problem of illegal phoenixing activities, which involve the illicit practice of transferring a company’s assets to avoid its obligations to creditors and then re-establishing the company under a new name. The Act aims to strengthen corporate and taxation laws to combat such practices and protect creditors' interests. Key provisions include introducing new offences for creditor-defeating dispositions, enhancing the accountability of directors, and imposing stricter penalties for illegal phoenixing activities. The Act also mandates an independent review of the amendments' operation after five years.

Scope and Application

The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 applies to corporations, their directors, and other entities involved in corporate transactions within Australia. The Act primarily targets illegal phoenixing activities, which involve the transfer of a company's assets to avoid creditor obligations, often leading to the company's insolvency. The Act introduces new offences and voidable transactions, enhancing the accountability of company directors and officers. It amends the Corporations Act 2001 to include provisions for creditor-defeating dispositions, where the consideration for a disposition is less than the property's market value or the best price reasonably obtainable, and the disposition prevents or delays creditors from accessing the property during the company's winding up. The Act also mandates duties for officers to prevent such dispositions when the company is or becomes insolvent or if external administration or cessation of business occurs within 12 months of the disposition. Additionally, the Act introduces safe harbour provisions for directors who take reasonable steps to prevent such dispositions. The Act's amendments apply to debts incurred and dispositions made after its commencement, affecting various Acts, including the Aged Care (Accommodation Payment Security) Act 2006, the Banking Act 1959, and the Corporations (Aboriginal and Torres Strait Islander) Act 2006. The Act also imposes new director accountability measures, such as requiring timely notification of resignations and ensuring companies have at least one director at all times. Furthermore, the Act imposes penalties for late notification of director resignations and voids resolutions to remove directors if the company would be left with no directors. The Act extends to goods and services tax (GST) estimates and director penalties, imposing duties on directors to ensure company compliance with tax obligations. The amendments apply to net amounts and assessed net amounts for tax periods starting after the Act's commencement.

Key Provisions

• The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020, as its title suggests, amends existing laws to address the issue of illegal phoenixing activities. Section 9 of the Corporations Act 2001 is amended to define "creditor-defeating disposition," and Sections 111Q(1) and (2) are updated to incorporate this new term into their definitions of "recovery proceeding." Subsections 415D(6)(c), 434J(5)(c), and 451E(5)(c) are repealed and replaced with new provisions that expand the scope of rights that can be voided under certain circumstances. Subsection 588E(1) is amended to add new categories of actions that constitute recovery proceedings, while Subsection 588E(4A) introduces a presumption that a disposition is creditor-defeating if the company fails to keep or retain financial records as required. The Act also introduces new offences related to creditor-defeating dispositions, with penalties for non-compliance.
• Entities and individuals governed by the Act must adhere to the new provisions regarding creditor-defeating dispositions and ensure that they do not engage in conduct that results in such dispositions. They must also take steps to prevent insolvent trading and ensure that financial records are kept and retained as required. Failure to comply with the Act can result in significant penalties, both civil and criminal. For example, officers of a company who engage in conduct that results in a creditor-defeating disposition may be subject to criminal penalties, while individuals who procure such dispositions may be subject to civil penalty provisions.
• The Act also includes provisions for ASIC to make orders to undo the effect of creditor-defeating dispositions, and for courts to set aside such orders if certain conditions are met. Additionally, the Act imposes obligations on directors to ensure that their companies meet their tax and superannuation obligations, with penalties for failure to do so. The Act applies to debts incurred and dispositions made after its commencement, and to resignations of directors and resolutions to remove directors that take effect after a certain period following the Act's commencement.

Legal classification tags

Area of Law

Corporate Law & Governance

Taxation Law

Instrument

Act

Concepts

Definitions & Interpretation

Commencement Provisions

Repeal & Amendment

Offence Provisions

Civil Penalty Provisions

Enforcement Powers

Compliance Obligations

Prohibited Conduct