What is phoenixing and is it illegal?
In Plain English
Phoenixing is when a company moves its assets to a new company to avoid paying its debts to creditors. The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 aims to crack down on illegal phoenixing, which involves transferring assets to avoid obligations to creditors.
Detailed Explanation
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 amends the Corporations Act 2001 to deter illegal phoenixing activity.
Key aspects of the legislation include:
- Creditor-defeating disposition: The Act introduces the term "creditor-defeating disposition," which is defined in section 588FDB of the Corporations Act 2001.
- Officer's duty: Section 588GAB of the Corporations Act 2001 introduces a duty for officers of a company to prevent creditor-defeating dispositions. This means an officer must not engage in conduct that results in the company making a creditor-defeating disposition of property if the company is insolvent, becomes insolvent because of the disposition, or enters external administration or ceases to carry on business as a result of the disposition. Failure to comply can result in an offence under subsection 1311(1) of the Corporations Act 2001 or a civil penalty under section 1317E of the Corporations Act 2001.
- ASIC's powers: The Act empowers ASIC to make orders under section 588FGAA of the Corporations Act 2001 to address creditor-defeating dispositions. ASIC can order a person who has received property as a result of a creditor-defeating disposition to return the property to the company or pay the company an amount equal to the value of the property.
- Review of amendments: The Minister is required to conduct an independent review of the operation of the amendments made by Schedules 1, 3, and 4 of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020.