Australia’s Labor proposes crack down on “Phoenix” company liquidations
The Guardian reports that in Australia they are proposing a crackdown on the directors behind “Phoenix” company liquidations, where directors wind up a company leaving creditors, the tax office and workers out in the cold, only to switch the business to a new liability free business. Like the mythical bird, the Phoenix company rises out of the ashes of the old company. “Phoenix activity” occurs when directors deliberately structure a company without assets to cause a liquidation that leaves taxes, workers’ entitlements and bills to suppliers unpaid. A second company is then created that rises from the ashes of the first but escapes its obligations to pay creditors.
Company directors would be required to register for an identification number under a suite of measures proposed by Australia’s opposition party Labor to crack down on deliberate “phoenix” insolvencies.
Higher penalties for phoenix activities and a new legal test for transactions depriving employees of their entitlements are also included in the policy, announced on Wednesday. The new identifier will help law enforcement agencies track potential repeat offenders and for small businesses and liquidators to access information on directors.
The other proposed measures include:
- Increasing maximum penalties associated with phoenix activity, including breaches of directors’ duties, managing companies while disqualified, aiding or abetting breaches and refusing to open books to external administrators
- Introducing an objective test for the company law that prohibits transactions that deprive employees of their entitlements
- Clarifying that courts can order accessories to breaches to pay compensation
The Credit Protection Association will monitor events in Australia with great interest. We are passionate about protecting creditors from rogue activity and are interested in any measures that can be taken to protect against pheonix activity that might be useful in the United Kingdom.