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New insolvency rules to protect legit creditors

Jotham Lian
Jotham Lian
12 December 2018 1 minute readShare
bankrupt, insolvent, poor, empty wallet

Dodgy insolvency practitioners will now find it harder to facilitate illegal phoenix activity under the government’s new rules to restrict the voting right of certain creditors to prevent collusion.

Assistant Treasurer Stuart Robert announced the introduction of the new insolvency practice rules that will restrict the voting rights of certain creditors related to a phoenix company, in a bid to ensure the interests of legitimate creditors are not affected by those complicit in illegal phoenix activity.

According to the government, one of the techniques employed by phoenix operators is to appoint an insolvency practitioner to undertake a formal insolvency process who will either facilitate or turn a blind eye to illegal phoenix activity.


To prevent their chosen insolvency practitioner from being voted out, or to replace an existing practitioner with one of their choosing, the phoenix operator may attempt to “stack” votes on resolutions at creditors’ meetings. The measures had been flagged back in August.

Implemented on 7 December 2018, the new rule will see creditors only vote up to the value of the amount paid for the debt.


The new measure will see a one-off education cost for insolvency practitioners to become acquainted with the change, and an ongoing cost for related creditors which are assignees.

The government will also provide an additional $8.7 million over four years from 2018–19 to increase funding for the Assetless Administration Fund.

The fund is administered by ASIC to finance preliminary investigations and reports by liquidators into the failure of companies with few or no assets, where this may lead to ASIC enforcement action, with a particular focus on curbing fraudulent phoenix activity.

This additional funding will increase ASIC’s ability to fund liquidators, who play a vital role in investigating and reporting illegal phoenix activity, including supporting the new liquidator avenues to recover assets lost through illegal asset stripping activity.



Other measures to combat illegal phoenix activity include introducing a new Phoenix Hotline, which makes it easier to report suspected phoenix behaviour to the ATO, the introduction of legislation to address corporate misuse of the Fair Entitlements Guarantee scheme and the establishment of the Phoenix, Black Economy and Serious Financial Crime Taskforces.

Illegal phoenix activity has been a major focus area for the government, with a PwC report estimating the direct annual cost of such activities on businesses, employees and the government to be between $2.85 billion and $5.13 billion per annum.

New insolvency rules to protect legit creditors
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Jotham Lian
Jotham Lian

Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016. 

The two-time Publish Awards finalist has an extensive journalistic career across business, property and finance, including a four-year stint in the UK. Email Adam at [email protected]

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