The Turnbull Government’s reform package released in September 2017, Combating Illegal Phoenixing, outlines a range of measures designed to identify, prevent and combat illegal phoenix activity.

“Phoenixing” is the colloquial term attributed to the practice of stripping a company of its assets and transferring those same assets to another company for little or no consideration, in an effort to avoid paying the company’s liabilities. This illegal activity is estimated to be costing each individual Australian tax payer approximately $100 per person according to a 2017 report  authored by academics from the University of Melbourne and Monash University.

Under the reforms, there are various proposed measures which take a particular focus on deterring advisors from facilitating such fraudulent activities and introducing mechanisms to identify, deter and penalise recalcitrant directors. Some of the proposed measures include:

• Specific offences to penalise those engaging in this illegal phoenix activity;
• Compulsory Director Identification Numbers (DINs);
• Extension of penalties and joint liability for advisors who assist in facilitating phoenix activity;
• Direct personal liability for directors to account for outstanding GST liabilities; and
• Restricting “high-risk” directors’ ability to choose their own liquidator.

The proposed reforms also attempt to crack down on pre-insolvency advisors who, unlike liquidators and other insolvency practitioners, are subject to very little regulation.

Currently, the Government is in the process of consulting various stakeholders on how best to implement these reforms so regulators are better equipped to take stronger action to deter and punish phoenixing activity while minimising the mounting costs on the Australia taxpayer.

For more information please contact ERA Legal.