Australia: Grounding illegal phoenix activity: Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019

Last Updated: 25 September 2019
Article by Shane Roberts and Sam Marsh

Grounding Illegal Phoenix Activity: Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019

In the 2018 Federal Budget, the government announced that it proposed to reform relevant legislation so that regulators could more efficiently curtail illegal phoenix activity.

These announcements have now been acted upon, and on 13 February 2019, the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 ('the Illegal Phoenixing Bill') was introduced into Parliament. The proposals in the Bill include giving ASIC, liquidators, and the ATO new powers to help deter and disrupt illegal phoenix activities and prosecute culpable directors and associated persons.

What is Phoenixing?

As a basic and broad definition, illegal phoenix activity involves the deliberate stripping and transferring of assets and funds from one company to another company to avoid paying liabilities, such as tax or superannuation. The original entity is liquidated by the directors, who then recommence with a same or very similar business through a new corporate entity - often using the same customers and employees.

That said, illegal phoenixing has not previously been defined in legislation. One of the difficulties in providing a specific definition has been in answering the question: "what precisely is illegal phoenixing activity?".

As early as 2004, the Parliamentary Joint Committee on Corporation and Financial Services recognised that precisely defining illegal phoenix activity was "difficult, if not nearly impossible" [Link to Parliamentary Joint Committee on Corporations and Financial Services 2004, Corporate Insolvency Laws: A Stock Take]. The reasons for this are manifold, but can essentially be distilled into three key areas:

  1. Illegal phoenix activity can take many forms;
  2. The methods by which illegal phoenix activity can be carried out are relevant to the definition of phoenix activity - these methods are continually changing and the definition must continue to be applicable in spite of these changes; and
  3. Distinction must be drawn between illegal phoenix activity and the legitimate entrepreneurial and genuine rebirth of a failed company.

The Cost of Phoenixing

In 2012 the FWC commissioned a report by PwC which estimated the total cost of illegal phoenixing to the Australian economy to be $1.78 - $3.19 billion per annum [link to Phoenix activity - Sizing the Problem and Matching Solutions]. These numbers were echoed in 2015 by the Productivity Commission Inquiry Report. More recently, a 2018 report prepared for the Phoenix Taskforce estimated the direct costs to the Australian economy resulting from illegal phoenix activities to be $2.85 - $5.13 billion per annum.

Indirect costs have not been measured, and may include a loss of investment, opportunity, and trade due to any lack of confidence caused by the fear of contracting with companies which may phoenix, or may be exposed to debtors who phoenix.

Proposed Measures to Combat Phoenixing

The Illegal Phoenixing Bill implements four key measures to combat illegal phoenix activity:

Schedule 1 introduces new phoenix offences to:

  • Prohibit creditor-defeating dispositions of company property;
  • Penalise those who engage in or facilitate such dispositions; and
  • Allow liquidators and ASIC to recover such property.

Schedule 2 ensures that directors are held accountable for misconduct by:

  • Preventing directors from improperly backdating resignations; and
  • Ceasing to be a director when this would leave the company with no directors.

Schedule 3 allows the Taxation Commissioner to:

  • Collect estimates of anticipated GST liabilities; and
  • Make company directors personally liable for their company's GST liabilities in certain circumstances.

Schedule 4 authorises the Commissioner to retain tax refunds where a taxpayer has failed to lodge a return or provide other information that may affect the amount the Commissioner refunds. This ensures that taxpayers satisfy their tax obligations and pay outstanding amounts of tax before being entitled to a tax refund.

New Phoenix Offences

Schedule 1 of the Illegal Phoenixing Bill proposes to amend the Corporations Act 2001 (Cth) ('the Corporations Act') with the aim of:

"improving the mechanisms available to combat illegal phoenix activity, specifically creditor-defeating dispositions: transfers of company assets that prevent, hinder or significantly delay creditors' access to the company's assets in liquidation."

To carry out these aims, the Illegal Phoenixing Bill introduces the concept of a 'creditor-defeating disposition'. In fact, this concept is a cornerstone of the proposed amendments. A creditor-defeating disposition is defined as being:

"a disposition of company property that has the effect of preventing, hindering or significantly delaying the property becoming available to meet the demands of the company's creditors in winding-up."

To prove a creditor-defeating disposition it will be necessary to establish that the deposition was made either:

  1. When the company was insolvent (or became insolvent as a result of the disposition); or
  2. 12 months prior to the company entering administration or liquidation.

The importance of the concept of a creditor-defeating disposition is clear when one notes the that the new civil and criminal offences are proposed to apply to:

  • Company officers that fail to prevent the company from making creditor-defeating dispositions; and
  • Other persons that facilitate a company making a creditor-defeating disposition.

These amendments will mean that other persons, including lawyers, accountants, and pre-insolvency advisors who are found to have procured, incited, induced or encouraged a company to make creditor defeating transfers of company assets will be exposed to liability, even above and beyond the accessorial liability provisions currently contained in section 79 of the Corporations Act.

That said, the proposed legislation does contain a number of safeguards with the aim of ensuring that legitimate restructuring activities do not lead to liability for illegal phoenixing. These activities include transactions made with creditor or court approval (as appropriate), transactions made under a deed of company arrangement or scheme of arrangement. The carve outs provided in the recent safe harbour provisions will also be maintained and protected.

Criminal Offences, Civil Penalties and Compensation

The Illegal Phoenixing Bill proposes the following civil and criminal offences:

  • A criminal offence applies to officers that engage in conduct that results in the company making a prohibited creditor-defeating disposition;
  • A civil penalty provision applies to officers that engage in conduct that results in a company making a disposition where a reasonable person would have known the disposition was a prohibited creditor-defeating disposition;
  • A criminal offence applies to persons that procure, incite, induce or encourage a company to make a prohibited creditor-defeating disposition; and
  • A civil penalty provision applies to a person that procures, incites, induces or encourages a company to enter into a disposition where a reasonable person would have known the disposition was a prohibited creditor-defeating disposition.

Therefore the threshold for criminality under the proposed amendments is recklessness as to harm. The relevant test to be applied is defined in the explanatory memorandum as:

"To be held criminally responsible, the officer must be reckless as to the result of their conduct: the result being the company making a creditor-defeating disposition. A person is reckless with respect to a result if they are aware of a substantial risk that the result will occur and, having regard to the circumstances known to them, it is unjustifiable to take the risk, or they know the result will occur...The question whether taking a risk is unjustifiable is one of fact."

An act of negligence which is not capable of being proven to have been reckless or intentional could still expose company officers and advisors to the harsh civil penalties proposed in the Illegal Phoenixing Bill.

The proposed amendments provide that to prove negligence to the standard necessary to impose a civil (rather than criminal) penalty, it must be established that:

  1. A reasonable person would know that the result of their conduct would be the company making a creditor-defeating disposition that prevents, hinders or significantly delays the disposed property becoming available to creditors;
  2. The presumption of insolvency applies if the company failed to keep adequate financial records (unless the records were destroyed, concealed or removed by another person and the officer was not in any way responsible);
  3. If the presumption applies, the defendant will need to prove the solvency of the company to deny this element.

The explanatory memorandum further states that the reversal of the onus of proof in these circumstances is appropriate due to the obligation of companies to maintain adequate financial records.

Penalties for Contravention of the Illegal Phoenixing Bill

The penalty for a contravention of the above is:

  1. If an individual:
    1. 10 years imprisonment;
    2. A fine, the amount of which is to be the greater of $945,000 or 3 times the benefit obtained (and detriment avoided) by that individual; or
    3. Both of the penalties listed above;
  1. If a company, a fine, the amount of which is to be the greater of:
    1. $9,450,000;
    2. 3 times the benefit obtained (and detriment avoided) by one or more persons reasonably attributable to the prohibited CREDITOR-DEFEATING DISPOSITION; or
    3. 10% of the annual turnover the company.

Failure to comply with an ASIC administrative order with respect to the proposed amendments is also an offence punishable with the same penalties.

Civil penalties also apply to:

  1. Officers that engage in conduct that results in a company making a disposition where a reasonable person would have known the disposition was a creditor-defeating disposition; and
  2. A person that procures, incites, induces or encourages a company to make a prohibited creditor-defeating disposition.

In addition, liquidators will be entitled to recover damages from offending officers and facilitators for loss suffered by the company's creditors as a result of the creditor-defeating disposition and the company's insolvency.

Recoveries by ASIC

The Illegal Phoenixing Bill proposes to give ASIC specific powers to make orders for the benefit of a company's creditors to recover company property, assets, or benefits disposed of or received under a voidable creditor-defeating disposition. ASIC will be entitled to employ these powers on its own initiative, or alternatively on the application of a liquidator.

The draft explanatory memorandum states that the aim of these provisions is to:

"both overcome difficulties faced by liquidators where the company has insufficient funds to cover the cost of court action, and to allow ASIC to intervene where a liquidator is not fulfilling its obligations to recover company property."


The changes aim to strike the balance between curbing illegal phoenixing activity, and allowing entrepreneurship and genuine restructuring activities. If they are able to do so then companies will be able to trade with more certainty of their interactions with debtors and potential debtors, and a considerable amount of money will flow back to the Australian economy.

The proposed changes, if passed into law, will have an impact on all directors and company advisors, who will need to be aware of their new obligations, and how they must comply with these obligation to avoid potentially harsh penalties - both criminal and civil in nature.

Details of the Consequences

This article has provided a synopsis of the principles and details of the proposals contained in the Illegal Phoenixing Bill. Our next article will discuss in detail the effects and likely consequences of the proposals if they are passed in parliament.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions