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Australian Government Act To Prevent Business Phoenixing

Australian Government Act To Prevent Business Phoenixing

21st Sep 18

Summary —

The Australian Government has proposed a series of legislative reforms to deter and disrupt illegal business 'phoenixing' and more harshly punish those who engage in and facilitate this illegal activity.

Key Issues For The Dental Industry —

The challenge faced by the Australian Government to date is that phoenix activity is not defined in legislation and can encompass both legitimate business rescue activities and the use of serial deliberate insolvency as a business model to avoid paying company debts.

While the scale of illegal phoenix activity ranges from the opportunistic to the systemic, a common characteristic is the stripping and transfer of assets from a company to another entity. Such transactions are carried out by a company’s directors or other controlling minds with the intention of defeating the interests of the first company’s creditors in that company’s assets. Such transactions are also facilitated by others, including unscrupulous pre-insolvency advisers, accountants, lawyers or other business advisers, who advise companies on how to engage in illegal phoenix activity.

The Australian Government has committed to ongoing reform of Australia’s corporate insolvency regime. The Exposure Draft contains a package of measures aimed at countering illegal phoenix activity and marks the Government’s third tranche of insolvency law reforms.

Schedule 1: introduces new phoenix offences to prohibit creditor-defeating dispositions of company property, penalise those who engage in or facilitate such dispositions, and allow liquidators and ASIC to recover such property;

Schedule 2: ensures directors are held accountable for misconduct by preventing directors from improperly backdating resignations or ceasing to be a director when this would leave the company with no directors;

Schedule 3: allows the Commissioner to collect estimates of anticipated GST liabilities and make company directors personally liable for their company’s GST liabilities in certain circumstances; and

Schedule 4: authorises the Commissioner to retain tax refunds where a taxpayer has failed to lodge a return or provide other information that may affect the amount the Commissioner refunds. This ensures taxpayers satisfy their tax obligations and pay outstanding amounts of tax before being entitled to a tax refund.

At the heart of the legislation is the creation of new phoenixing offences to prohibit creditor-defeating dispositions of company property, penalise those who engage in or facilitate such dispositions, and allow liquidators and ASIC to recover such property. 

Australian Government Downloads —

. Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2018 [PDF] *
. Treasury Laws Amendment - Explanatory Memorandum [PDF] *

Further reforms are aimed at preventing relating creditors from facilitating illegal phoenix activity by unduly influencing the removal or replacement of external administrators.

Illegal phoenix activity was a significant issue explored in the Senate Economics Reference Committee’s 2015 inquiry into Insolvency in the Australian construction industry. An April 2018 report by PricewaterhouseCoopers, prepared for the Phoenix Taskforce, estimated the direct cost to businesses, employees, and government as a result of potential illegal phoenix activity to be between $2.85 billion and $5.13 billion in 2015-16.

Member Engagement —

ADIA's response to the Australian Government consultation will be developed as a result of the advice and guidance members serving on the ADIA-TCPC Trade & Commercial Policy Committee provide to the policy team in the ADIA National Office.

Further Information —

To keep up to date with the latest market statistics subscribe to the Twitter feed @AusDental or follow us on Facebook at Alternatively, you can contact the ADIA policy team via email at or by telephone on 1300 943 094.

Currency Of Information & Disclaimer —

This update was issued on 21 September 2018 and please note that changes in circumstances after the publication of material or information may impact upon its accuracy and also change regulatory compliance obligations. The statements, regulatory and technical information contained herein are believed to be accurate and are provided for information purposes only. Readers are responsible for assessing its relevance and verifying the accuracy of the content. To the fullest extent permitted by law, ADIA will not be liable for any loss, damage, cost or expense incurred in relation to or arising as a result of relying on the information presented here. 

This publication is available for your use under a Creative Commons Attribution 3.0 Australia licence, with the exception of the ADIA logo, images and where stated.

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