Government consults on further reforms to curb phoenixing

The government has released a consultation paper on further proposed reforms to combat illegal phoenix behaviour.

According to Minister for Revenue and Financial Services Kelly O'Dwyer, the changes will assist regulators to better target and take stronger action against phoenixing.

Phoenixing involves the stripping and transfer of assets from one company to another to avoid paying liabilities. In 2012, the Fair Work Ombudsman and PwC estimated the cost of phoenixing to the Australian economy to be as high as $3.2 billion annually.

O'Dwyer says phoenixing is becoming increasingly sophisticated and difficult to detect and deter within the existing legal and regulatory framework.

As a result, the proposed reforms, based on the recommendations of its Phoenix and Black Economy taskforces, recommend several changes to the corporations and tax laws.

According to a summary by lawyers MinterEllison, the government’s broader proposals (Part One) include:

  • creating a new phoenix hotline
  • creating a phoenixing offence and associated remedies/penalties
  • imposing new requirements around the resignation of directors to make it more difficult for directors to abandon companies, and easier for directors to be held accountable if they resign
  • restricting the rights of related creditors to vote at creditors’ meetings
  • extending the promoter penalty laws to apply to promoters or facilitators of illegal phoenix activity
  • extending the existing director penalty notice (DPN) regime to include companies' outstanding GST obligations. Directors of these companies would be personally liable to pay a penalty equivalent to the amount of unpaid GST
  • amending garnishee provisions to strengthen the effectiveness of the security deposit power.

Part Two of the consultation paper proposes the adoption of a two-tiered approach mechanism to identify and target the most egregious phoenix operators. MinterEllison says the suggested reforms also include:

  • appointing liquidators on a cab rank basis
  • removing the 21 day waiting period for a DPN
  • providing the Australian Taxation Office with the power to retain refunds.

These reforms will complement a range of other steps the government is taking to combat illegal phoenixing. Submissions to the consultation paper must be made by  27 October 2017.

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