Late last week the Senate passed the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019, which will become law very shortly.
The tortuous history of this legislation was set out in our September article, " Anti Phoenixing Reforms are still circling...". Since then an amendment was included, during the Bill's recent passage through the Senate, requiring a 5 year review of the effectiveness of the new laws.
Directors, and those who advise them, have been waiting for these amendments for some time, and with some trepidation. The new laws create a device called a "Creditor Defeating Disposition (CDD)". This is a sale or disposal of company property for less than market price, which stops or delays that property becoming available for creditors in the winding up of a company.
A company director or officer will now commit an offence if they engage in conduct that results in a CDD, if this occurs while the company is insolvent, or if within 12 months the company goes into external administration or shuts down altogether. Knowledge is not an element of the offence – in other words, a director does not have to be deliberately stripping assets to be guilty of the offence.
Similar penalties apply to those who "engage in conduct of procuring, inciting, inducing or encouraging the making by a Company" of a CDD.
It is therefore critically important for company directors and officers and their advisors to understand the operation of the new laws if they are disposing of assets in a distressed company, or undertaking some other form of restructure.
Property disposed of as a result of a CDD may be recovered by a company's liquidator, or by ASIC on its own initiative. ASIC now has the power to issue a notice requiring the value of the property, the proceeds of sale or the value of the benefit obtained through the disposal, to be paid back to the insolvent company. A recipient of the notice commits an offence if they do not comply, unless they apply to the court to set the order aside.
The pain doesn't end there for directors. The Director Penalty Notice Regime has been extended to GST and certain other taxes, for which directors can now be made personally liable. The Commissioner will be able to retain refunds that would otherwise be due to directors in order to meet tax liabilities of companies.
The Bill will also make it harder for directors to 'jump ship'. Directors will no longer be able to use backdated resignations to avoid liability, or resign and leave a company directorless.
The Bill is one part of a suite of reforms aimed at increasing the accountability and liability of company directors. Now, more than ever, directors must ensure that they are getting the right advice about their duties and liabilities, as they continue to become more onerous.
Anti-Phoenixing Laws are Finally Here