New rules aimed at restricting the ability of directors to wriggle out of meeting creditor payments have been unveiled, as part of moves to curb the amount of phoenix activity crippling SMEs.
Revenue and Financial Services Minister Kelly O’Dwyer released the draft legislation on Thursday (16 August), which includes officially declaring certain dodgy practices a punishable offence, restricting methods directors can employ to limit their personal liability such as backdating resignations or leaving a company with no directors, and restricting the voting rights of phoenix company operators during creditor meetings.
Under the legislation, new offences will include:
- Directors engaging in creditor-defeating transfers of company assets that prevent, hinder or significantly delay creditors’ access to those assets.
- Pre-insolvency advisers and other facilitators of illegal phoenix activities also being made liable for facilitating creditor-defeating transfers of company assets.
Both will be criminal as well as civil offences and will attract “the highest penalties available under the law”.
The latter point follows a raid by ATO investigators on 11 tax agents who stand accused of facilitating phoenix activity.
ASIC’s powers will also be boosted to enable it to recover property that has been illegally transferred away from creditors.
“The government is cracking down on illegal phoenix activity for the benefit of all the hard-working Australians who are negatively affected by this abhorrent behaviour,” Ms O’Dwyer said.
“This reform package is based on strong support provided from stakeholders in response to the consultation paper, and is informed by the work of the government’s Phoenix Taskforce. The package will give our regulators better tools to deter and disrupt this illegal activity.”
Anyone wishing to comment on the proposed legislation can do so on the Treasury website.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.