Industry has been quick to respond to the draft reforms Treasury released in August aimed at more effectively combatting illegal phoenix activity and the verdict from the two key bodies is mixed.
Both the Australian Restructuring, Insolvency & Turnaround Association (ARITA) and the Australian Institute of Credit Management (AICM) lodged submissions to the draft reforms on September 28, 2018.
The thrust of the submissions is that while some of the new initiatives are welcome, both organisations insist that there be increased political will to adequately resource and relentlessly pursue enforcement at every level.
ARITA also said it was concerned that the proposed legislation risked duplicating existing powers while failing to address the lack of a specific phoenix offence.
“We strongly believe that a more appropriate response would be to strengthen existing anti-phoenixing tools within the Corporations Act rather than creating quasi-duplicate mechanisms,” ARITA said.
“We are disappointed that an actual “phoenixing” offence has not been created. The absence of this will hinder any effective communication strategy that may actually drive cultural change to call out and mitigate this behaviour.”
The AICM said it expected that there was a genuine commitment from government to pursue enforcement – a not-so-subtle reference to the failure of successive governments to adequately fund the corporate regulator.
“Our support of these reforms is predicated on the understanding that they are reforms that ASIC and other members of the anti-phoenix taskforce require to increase the amount of enforcement activity and that the government acknowledges that enforcement is needed to combat illegal phoenix activity,” the AICM said.
“The AICM supports the positions of ARITA that enhance the ability of registered liquidators to effectively pursue illegal phoenix activity.”
The key points made in ARITA’s submission are:
- We strongly believe that a more appropriate response would be to strengthen existing anti-phoenixing tools within the Corporations Act rather than creating quasi-duplicate mechanisms.
- We are disappointed that an actual “phoenixing” offence has not been created. The absence of this will hinder any effective communication strategy that may actually drive cultural change to call out and mitigate this behaviour.
- A lack of adequate funding and documentary evidence available to liquidators will continue to hamper the effectiveness of the reforms.
- ARITA has concerns regarding the breadth of transactions captured as a ‘creditor-defeating disposition’ and believes that dispositions in the ordinary course of business should be specifically excluded from the definition.
- While ARITA supports an administrative recovery regime, an inherent lack of supporting documentation in relation to illegal phoenix transactions will limit any recovery by ASIC.
- ARITA generally supports the reforms to prevent officers from backdating resignations or abandoning companies, subject to the addition of anti-avoidance mechanisms, but notes that its effectiveness is closely tied to the implementation of the proposed Director Identity Number.
- ARITA supports the changes in respect of GST estimates and director penalties.
- While supportive of the move for the ATO to retain tax refunds, ARITA believes measures are required to restrict the ability of the ATO to obtain a higher priority for its debt following the appointment of an external administrator.
- ARITA supports the reforms to restrict related creditors’ voting rights to the value of the consideration paid for an assigned debt when conducting a poll for a resolution concerning the appointment or removal of an external administrator.
To view the submissions in full see: