Recent reform and the inception of illegal phoenixing legislation has targeted illegal phoenixing practices. Receiving royal assent on 17 February 2020, the Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020 is now in force and provides such regulatory agencies like ASIC, the ATO and liquidators new powers to ‘burn down’ phoenixing activities and enable the prosecution of the directors and persons responsible. In this article, we will explore the aspects of illegal phoenixing that this new law combats and the new penalties and offences in place.
The highly anticipated new phoenixing offences amend the Corporations Act 2001 (Cth) to increase mechanisms available to combat illegal phoenixing. Specifically, creditor-defeating dispositions is a targeted area the new law aims to asunder. A creditor-defeating disposition is defined as a disposition of company property for less than its’ market value. This has the effect of preventing and delaying the property becoming available to meet the demands of a company’s creditors for the process of winding-up a company.
To combat this, courts have been allowed powers to now void a transaction and rescind it (restoring parties to a position they would have been in before the transaction). This is all ‘backed up’ by Schedule 1 of the legislation which makes it an offence for a company officer or person to cause a company to create a creditor-defeating disposition. The law also incepts four offences resulting in penalties (such as ten years prison and disqualification) for prohibited creditor defeated dispositions.
To combat the ignorance of GST liabilities due to illegal phoenixing, the Commissioner of Taxation has been granted powers to collect estimates of anticipated GST liabilities under Schedule 3 of the Phoenixing Act. Company directors now also hold personal accountability for their company’s GST and other tax liabilities in specific situations. A director penalty regime applies when a company is liable to pay any of the following:
- Superannuation guarantee charges
- PAYG withholding amounts
- Estimates of PAYG withholding amounts and superannuation guarantee charges
The satisfaction of the above liabilities is the responsibility of a director to ensure they meet their payment obligations. If these obligations are not met or are breached, there are severe director penalties.
In relation to the accountability of resigning directors, Schedule 2 of the Act further ensures all directors are held accountable for any illegality; preventing directors from backdating their dates of resignation and resigning from their company if the resignation would leave the company with not directors at all. This is of course unless a company is being wound up.
The retention of tax refunds is further another protective feature the illegal phoenixing Act has allowed the Commissioner of Taxation. The Commissioner is authorised to retain tax refunds where a taxpayer has failed to lodge a return or provide other information to the Commissioner, which may ultimately effect the amount the Commissioner refunds. This ensures that taxpayers satisfy their taxation obligations and pay outstanding tax amounts prior to being entitled to refunded tax.
It is vital, as provided by the new penalties, powers and provisions of the Phoenixing legislation that companies comply with the rules and seize any illegal phoenixing activities. You should familiarise yourself with the new phoenixing laws as failure to do so may result in offences.
If you require further assistance with respect to the above or would like to know more about illegal phoenixing legislation, you are welcome to contact our team of experienced accountants and lawyers by clicking here to submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange conference or appointment.