UncategorizedJuly 27, 20200Decoding the Illegal Phoenix: Part 2

In the previous article, I outlined the definition of phoenix activity. In this post, I will discuss the four key measures that were part of the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019.

Schedule 1

This measure introduced new phoenix offences to prohibit the creditor-defeating dispositions of company assets prior to a liquidation. This can include property sold for less than market value, at a time when the company was insolvent or became insolvent as a result of the transaction or even if the transaction results in the company entering administration within twelve months (no insolvency required). The measure allows liquidators and ASIC to recover such property. It is also designed to penalise those who engage in or facilitate any such disposition including company directors or even pre-appointment advisors through the introduction of new civil and criminal liability provisions.

Schedule 2

This measure ensures that directors are held accountable for misconduct which includes backdating resignations as office holders or ceasing to act as director when this will leave a company with no directors. Commencing on 18 February 2021, a director’s resignation will take effect on the desired date as long as the form is lodged with ASIC within 28 days of that date. Otherwise, the date will be the day the form is lodged. ASIC or a court may agree to backdate a resignation, however an application will need to be made within 56 days of the resignation date and if sufficient evidence can be provided to confirm the resignation actually occurred on the earlier date.

Schedule 3

This measure has enabled changes to the taxation system and the Director Penalty Notice (DPN) regime. Of note is that a DPN can now include outstanding Goods and Services Tax, Wine Equalisation Tax and Luxury Car Tax. Only debts incurred from 1 April 2020 can be included. Directors should be made aware of the differences between a lockdown and non-lockdown DPN. For further information on this, please refer to the ATO website or give our office a call for additional guidance.

Schedule 4

This measure simply enables the ATO to retain any taxation refunds where a taxpayer has failed to lodge a return or provided information to the ATO as required. This will ensure that a taxpayer has satisfied their obligations and paid any outstanding statutory debts prior to being entitled to that refund. This measure commenced on 1 April 2020 and applies to refunds payable after that date.

These changes attempt to find that balance between eradicating illegal phoenix activity but allowing a genuine restructure of a distressed company. There is still some way to go on this matter with the exploration of director identification numbers and calls to adopt some form of the UK method in pre pack administrations. These changes will have an impact on directors and company advisors who will need to be aware of their continued obligations when dealing with company assets prior to an insolvency appointment.

They will need to comply with these obligations or face the potential for harsh civil and criminal penalties. With the right advice, a genuine restructure is possible and one that will not fall foul of an investigating liquidator and the new powers under this Bill.

 

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