The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 was passed by both houses of Parliament on 5 February 2020, with an amendment made by the Senate to review the operation and effectiveness of the legislation after five years accepted by the House of Representatives.
The long-awaited legislation will enable ASIC and liquidators to take increased action to combat phoenix activity, and will require directors to carefully consider the obligations of companies they are appointed to. It will remain to be seen whether the legislation has the effect of quelling good faith restructuring.
The legislation is the Government's third tranche of insolvency law reforms, following the Insolvency Law Reform Act 2016 and the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) 2017 Act, which introduced safe harbour provisions for company directors.
Specifically, the legislation amends the Corporations Act 2001 (Corporations Act), A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and Taxation Administration Act 1953 (TAA) to:
- Introduce new phoenixing offences, and other rules relating to property transfers designed to defeat creditors, including allowing liquidators to apply for Court orders to set aside these transactions. The focus is upon the concept of a 'creditor-defeating disposition' which is one undertaken, if the consideration is less than the lesser of market value and the best price that was reasonable obtainable, and the disposition has the effect of preventing, hindering or significantly delaying the process for the property becoming available for the benefit of the creditors in a winding up;
- Provide ASIC with the power to, itself make 'orders' in connection with illegal phoenix activity, including for the transfer of property, and intervening where a liquidator is not fulfilling its obligations to recover company property or is unable to do so if a company has insufficient funds to cover court proceedings. The Constitutionality of such a provision is likely to be called into question;
- Prevent directors from improperly backdating resignations, or ceasing to be a director if this would leave the company with no directors;
- Allow the Commissioner of Taxation (Commissioner) to collect estimates of anticipated Goods and Services Tax (GST) liabilities, and make company directors personally liable for their company's GST liabilities in certain circumstances; and
- Authorise the Commissioner to retain tax refunds where a taxpayer has failed to lodge a return or provide other information to the Commissioner that may affect the amount of a refund.
It is expected the legislation will receive Royal Assent by mid-February 2020 (provided it receives Royal Assent within seven to 10 working days from the date it was passed). Amendments to the Corporations Act will commence the day after Royal Assent, while amendments to the GST Act and TAA will take effect from the start of the first quarter after Royal Assent (which is anticipated to be 1 April 2020).
