By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group
Recent reforms have sought to clamp down on ‘illegal phoenix’ activity and advisers. Illegal phoenix activity is never properly defined, but is generally a reference to a business or its assets being deliberately transferred to a related entity with the intention of avoiding payment of creditors. In a series of blogs Matthews Folbigg will look at this issue and the Government’s recent legislative ‘Illegal-phoenix’ amendments targeting illegal phoenix advisers. However the changes highlight some of the very real dangers for directors, as well as for accountants, lawyers and business advisers who may inadvertently be now involved in criminal activity.
In December 2019, the Australian Small Business and Family Enterprise Ombudsman (“ASBFEO”) released a Discussion Paper as a part of an Insolvency Practice Inquiry. The Discussion Paper briefly mentions the common occurrence of small businesses seeking assistance from pre-insolvency advisers. The Discussion Paper comments that “The word adviser can be misleading as there are no requirements to be licenced, no regulation of their practises and no dispute resolution process if things go wrong.” The Discussion Paper can be found on ASBFEO’s website at this link.
In its submission to the ASBFEO Insolvency Practices Inquiry, the Australian Restructuring Insolvency and Turnaround Association (“ARITA”) provided further comment on pre-insolvency advisers, echoing ASBFEO’s comments about the lack of regulation. However ARITA heavily criticises pre-insolvency advisers, describing them as “dodgy” and “ambulance chasers” who “encourage unlawful conduct such as hiding or stripping assets and illegal phoenixing.” ARITA refers to a survey conducted in 2015 in which 78% of liquidators had encountered liquidations involving pre-insolvency advisers while calling for effective enforcement action against them. ARITA’s submission to the ASBFEO can be found at this link.
It is in the context of this background that the Government has for some time been considering amendments intended to attack illegal phoenix activity and those facilitating such activity by directors. This legislation was interrupted by the Federal election in 2019, but was finally passed as the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth). This Act amends the Corporations Act in some significant ways which we will explore in further blogs. You can access the Act here.
Click here to access the next blog in this series: creditor-defeating dispositions.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Andrew Hack at andrewh@matthewsfolbigg.com.au or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
