Earlier this year, the senate passed the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 through parliament.  The Bill, which was originally introduced in February 2019, and reintroduced in July 2019, presents new measures to combat Australia’s increasing illegal phoenix activity. In doing so, it amended the Corporations Act 2001, A New Tax System (Goods and Services) Act 1999 and the Taxation Administration Act 1953 from 1 April 2020.

Phoenix activity occurs where a new company is created to continue the business of an existing company. Typically, this will involve a company entering into a transaction with another related entity for the sale of its assets. This allows the business to continue, however the new company will not have any of the liabilities that the original business had, such as obligations to creditors, the ATO or employees. This activity becomes illegal where the old company is placed in liquidation after all assets have been transferred.

In seeking to curb this illegal activity, the Bill has introduced the following measures:

Creditor-defeating disposition

The Bill introduces new offences for creditor-defeating disposition. In doing so, it provides that a creditor-defeating disposition will be made out where:

  1. The consideration paid to the company for the relevant property was less than the lesser of:
    • The market value of the property; or
    • The best price that was reasonably obtainable for the property, having regard to the circumstances existing at that time.

2. The disposition has the effect of preventing the property from becoming available for the benefit of the company’s creditors in the winding-up of the company; or hindering, or significantly delaying that process.

Further, the Bill introduces criminal and civil penalties for company officers that fail to prevent the company from making creditor-defeating dispositions, or other persons that facilitate creditor defeating dispositions.

ASIC permitted to recover company property

ASIC will be entitled to order a person to:

  1. return to the company for distribution among creditors, any property that was transferred subsequent to the initial creditor-defeating disposition;
  2. Pay an amount equal to the benefit the person received from the creditor-defeating disposition;
  3. Transfer property that was purchased with the proceeds of sale of a creditor-defeating disposition.

Limitations on Director resignations

Directors will be prohibited from backdating resignations or ceasing to be a director if this would leave the company with no directors.

GST Liabilities

Under the A New Tax System (Goods and Services Tax) Act 1999 and Taxation Administration Act 1953, from 1 April 2020, the Commissioner of Taxation will be entitled to collect estimates of anticipated GST liabilities. Company directors may also be made personally liable for their company’s unpaid GST, Luxury Car Tax and Wine Equalisation Tax liabilities in certain circumstances.

 Tax Refunds

The Bill will amend the Taxation Administration Act 1953 to enable the ATO to retain tax refunds where a taxpayer has failed to lodge a return or failed to provide other information that might affect the amount of a refund.

In delivering his second reading speech to Parliament, the Honourable Michael Sukkar, Assistant Treasurer and Minister for Housing, asserted that “this bill will give our regulators additional enforcement and regulatory tools to better detect and address illegal phoenix activity and, importantly, to prosecute or penalise directors and others who facilitate this illegal activity, such as unscrupulous pre-insolvency advisors.”