Commercial and Corporate update: New reform to combat illegal phoenix activity effective from 18 February 2021

Feb 23, 2021

On Friday 18 February 2021, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Act) came into effect introducing significant changes in relation to directorships.

The Act was passed by Parliament in February 2020 to help liquidators and regulators combat illegal phoenix activity.

What is illegal phoenix activity?

Illegal phoenix activity involves creating a new company to continue the business of an existing company that has been deliberately liquidated to avoid paying the company’s outstanding debts.

The Act will hold directors accountable for their actions and will prevent them from improperly backdating resignations or leaving companies without directors.

New requirements for resigning directors

Resigning directors or the company will now be required to notify ASIC of a director’s resignation within 28 days. If ASIC is not notified within the 28-day timeframe, the effective resignation date will be the date the document was lodged.

If a director or company want to fix an earlier resignation date, the company or director can apply to ASIC or the court to do so. Applications to ASIC must be made within 56 days of the person ceasing to be a director and applications to the court should be made within 12 months of the person ceasing to be a director, unless the court permits a longer period.

The Act also prohibits a company from removing the last director on ASIC records, resulting in a company having no directors. If a director has resigned, the resignation will be deemed invalid if the company will have no directors post the resignation. Such applications will be rejected by ASIC. This also applies in instances where a member’s resolution purports to remove a director, resulting in the company having no directors left. Such resolution will be rendered void.

There are some limited exceptions including if:

  • a company is being wound up or under external administration;
  • the director never consented to the appointment; or
  • the last director is deceased.

What does this mean?

The implementation of the Act assists ASIC and other government agencies in detecting and eliminating directors and advisors who engage in illegal phoenix activity.

Directors should take note of the key changes that are now in effect and be aware that partaking in illegal phoenix activity may involve serious breaches of the Corporations Act 2001 (Cth). Such breaches may result in hefty monetary penalties and up to 15 years imprisonment for directors, secretaries and anyone else who partakes in such activity.

More information

For further information, or to discuss the recent changes to directorships, please contact Jeremy Goldman, Principal Lawyer and Head of Commercial and Corporate, on (03) 8600 8886, Darren Brown, Principal Lawyer, on (03) 8600 8867, or Roger Rothfield, Special Counsel, on (03) 8600 8844.

Author

This Commercial and Corporate update was authored by Dania Ammouche, Lawyer

Note: This update is a guide only and is not intended to constitute legal advice.

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