The Federal Government has released a consultation paper on company and tax law reforms to combat phoenix activities. Phoenixing occurs when individuals or entities strip assets from an indebted company and transfer them to another company to avoid paying the first company's liabilities.
The following proposals are under consideration:
- The ATO, or whichever agency is best placed to do so, could operate a singular "phoenix hotline" so that any information reported by the community about phoenix concerns could be shared with all members of the Government's Phoenix Taskforce.
- It is proposed to amend the Corporations Act 2001 to establish a specific phoenix offence, prohibiting the transfer of property from one company to another if the main purpose of the transfer was to prevent, hinder or delay the process of that property becoming available for division among the first company's creditors. Rebuttable presumptions of insolvency would apply, and such a transaction would be void against a liquidator (so that the assets could be clawed back in liquidation).
- The promoter penalty laws could be extended to apply to promoters of illegal phoenix activity to assist in disrupting the phoenix business model, and in particular to facilitators who advise or aid and abet illegal phoenix activity. One option would be to expand the scope of the promoter penalty law to apply not just to "tax exploitation schemes", but also to activities designed to avoid taxation obligations, including by rendering a company unable to pay its obligations. Another option is to create a new provision outside of the existing promoter penalty laws, similar to the provision on the promotion of illegal early release of superannuation benefits.
- The director penalty notice regime could be extended 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. The proposed expansion would apply to all directors.
- There could be a limitation on a sole director's ability to resign from office without either first finding a replacement director or winding up the company's affairs. This could be enacted by amending the Corporations Act to deem such a resignation ineffective.