Background
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (the Act) is an amendment to the Corporations Act 2001 (Cth) which legislates the rules around corporations, taxation and other purposes. This amendment relates to the practice of illegal phoenixing in which a new company is created to continue the business of an existing company that has been liquidated to avoid paying outstanding debts. ASIC reported that illegal phoenixing costs employees between $31 and $298 million in unpaid entitlements and has cost the Government $1,660 million in unpaid taxes.
Creditor-defeating disposition
The bulk of the amendments relate to voidable transactions with the concept of creditor-defeating disposition central to the Act. A creditor-defeating disposition is a disposal of company property for less than its market value. This has the effect of preventing, hindering or significantly delaying the property becoming available to meet the needs of the company’s creditors upon winding up. It is necessary to establish that the company received consideration that was less than the best price reasonably obtainable for the disposition.
The amendments define creditor-defeating disposition, and how to identify when one may be present. The amendments also mandate that ASIC may make orders undoing of the effect of creditor-defeating disposition. On top of this, the Courts may make similar orders, with the additional power to set aside orders made by ASIC. Provisions have also been added prescribing duties to officers of corporations to prevent creditor-defeating dispositions. Additionally, procuring, inciting inducing or encouraging the making of a creditor-defeating disposition is outlawed by the amended legislation.
Improving the accountability of resigning directors
Further amendments to the Corporations Act 2001 (Cth) are geared at improving the accountability of resigning directors. These amendments add safeguards to ensure that directors are resigning under just and equitable circumstances.
Indigenous sector concerns
These amendments will affect the Indigenous sector insofar as the sector is influenced by the Corporations Act 2001 (Cth). This includes Indigenous run and owned businesses.