In the 2018-19 Budget, the Government announced a package of reforms to the corporations and tax laws to combat illegal phoenix activity.
The proposed reforms include a range of measures to both deter and disrupt illegal phoenixing and more harshly punish those who engage in and facilitate this illegal activity.
The exposure draft legislation includes reforms to:
- Introduce new phoenix offences that target those who conduct and those who facilitate illegal phoenix transactions;
- Prevent a sole director from resigning and leaving a company as an empty corporate shell with no director;
- Extend the director penalty provisions to make directors personally liable for their company’s GST and related liabilities;
- Expand the Australian Taxation Office’s existing power to retain refunds where there are tax lodgments outstanding;
- Restrict the voting rights of related creditors of the phoenix operator at meetings regarding the appointment or removal and replacement of an external administrator.
The legislation is tightly targeted at those who misuse the corporate form, while minimising any unintended impacts on legitimate businesses and restructuring.
It is worthy to note that proposed reforms do not provide a definition of phoenix activity. This is because phoenix activity can encompass both legitimate business rescue and the use of serial insolvency as a business model.
Michael Durbridge & Ben Heaney