After having been introduced to the Commonwealth Parliament on 13 February 2019, then re-introduced on 4 July 2019, the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 finally passed through both Houses on 5 February 2020. As its name suggests, the Bill introduces a number of new measures aimed at combating illegal phoenix activity in Australia.
Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying debts, including taxes, creditors and employee entitlements. A new company emerges from the ashes of its liquidated predecessor, hence the mythological reference.
The statutory changes introduced by this Bill will give liquidators, ASIC and the Commissioner of Taxation additional tools to combat such activity, which has been estimated to cost businesses, employees and the government billions of dollars a year.
The Bill implements four measures designed to crack down on creditor-defeating dispositions of company property, improper resignations and removals of company directors, unpaid GST liabilities, and failures to lodge tax returns or provide other information required by the Commissioner of Taxation. Those measures are summarised as follows.
New provisions will be introduced into the Corporations Act concerning “creditor-defeating dispositions” – being dispositions of company property if:
Such dispositions will be voidable transactions if:
Entities that receive the benefit of voidable dispositions may be ordered by ASIC to transfer the money or property back to the company, or to pay an amount or transfer property to the company that fairly represents the benefits/proceeds received (directly or indirectly) because of the disposition.
Moreover, company officers will be subject to a new statutory duty to not engage in conduct that results in the company making a creditor‑defeating disposition, if:
Pre-insolvency advisors will similarly be prohibited from engaging in conduct that procures, incites, induces or encourages a company to make creditor-defeating dispositions in those circumstances.
Company officers and pre-insolvency advisers who breach these new provisions may face civil and criminal penalties of 4,500 penalty units or three times the benefit obtained, and/or imprisonment for 10 years.
Improving the accountability of resigning/removed directors
In an effort to prevent directors shifting accountability to “straw directors”, backdating resignation notices, or abandoning their companies, new provisions will be incorporated into the Corporations Act such that:
GST estimates and director penalties
The estimates regime and director penalty regime under the Taxation Administration Act will be extended so as to apply to Goods and Services Tax (GST) liabilities, including Luxury Car Tax and Wine Equalisation Tax.
Commissioner’s power to retain tax refunds
The Commissioner’s entitlement to retain tax refunds where a taxpayer has failed to lodge a return or give notice under any of the BAS or petroleum resource rent tax provisions of the Income Tax Assessment Act 1997 will be expanded so that the Commissioner may retain a refund tax refunds where a taxpayer has failed to lodge a return or give notice under any provision of a taxation law.
 ASIC (2019) Concerns about illegal phoenix activity, accessed at: https://asic.gov.au/about-asic/contact-us/how-to-complain/concerns-about-illegal-phoenix-activity/; ATO (2019) Illegal phoenix activity, accessed at: https://www.ato.gov.au/General/The-fight-against-tax-crime/Our-focus/Illegal-phoenix-activity/.
 Paragraph 1.4 of the Explanatory Memorandum. NB: those estimated losses are notwithstanding existing measures to stave off phoenix activity, such as sections 181-184, 588FB, 588FC, 588FDA, 588FE, 588G, 596AB and 590(1)(c) of the Corporations Act and Division 269 of the Taxation Administration Act.
 New section 588FDB of the Corporations Act.
 New section 588FE(6B) of the Corporations Act.
 New section 588FGAA of the Corporations Act. NB: ASIC’s administrative orders may be set aside by a court if an application is brought within 60 days.
 New section 588GAB of the Corporations Act.
 New section 588GAC of the Corporations Act.
 I.e. someone who has no real involvement in the company, has little or no knowledge of their appointment and is often of limited financial means; this may also be a deceased person or someone entirely fictitious. See paragraph 3.10 of the Explanatory Memorandum.
 New section 203AA of the Corporations Act.
 New sections 203AB and 203CA of the Corporations Act.
 Pursuant to the estimates regime, the Commissioner can collect estimates of PAYG(W) and superannuation guarantee charge liabilities.
 Pursuant to the director penalty regime, the Commissioner can issue director penalty notices (DPNs) in respect of outstanding PAYG(W) and superannuation guarantee liabilities, and directors who fail to make the payments or place the company into voluntary administration/liquidation within 21 days of receiving a DPN will be personally liable for the outstanding amounts.
 Amended sections 268 and 269 of the Taxation Administration Act.
 As defined in subsection 995‑1(1) of the Income Tax Assessment Act 1997.
 Amended section 8AAZLG(1) of the Taxation Administration Act.
Guy Edgecombe, Partner
Mitchell Byram, Associate