Proposed phoenix reforms could give a free pass to shonky marketing bosses
Lawyer Ben Sewell unpacks the government's new phoenix reform proposals, and explains why he believes they don't go far enough.
Have you ever been burned by companies who escape their debts by doing a phoenix? If you have, you’re not alone. Unfortunately, there’s a lot of phoenix activity in the media and marketing industry.
But don’t worry – the federal government says it’s here to help [insert ironic laugh]!
The government has just released a new reform package aimed at curbing phoenix activity (which is when you transfer the assets of a failed company to another company that has no liabilities). Kelly O’Dwyer, the financial services minister, says the new rules will “deter and disrupt the core behaviours of illegal phoenixing”.
The new reforms are intended to stop businesses illegally rising from the ashes | Photo by Cullan Smith on Unsplash
Before I explain why I don’t think this reform package will help the media and marketing industry, let me outline the key elements of the government’s draft legislation. They are:
- Creating new phoenix offences to target those who engage in and facilitate illegal phoenix transactions
- Preventing directors from backdating their resignations to avoid personal liability
- Preventing sole directors from resigning and leaving a company as an empty corporate shell with no directors
- Restricting the voting rights of related creditors of the phoenix company at meetings regarding the appointment or removal and replacement of a liquidator
- Making directors personally liable for GST liabilities, as part of extended director penalty provisions
- Extending the ATO’s existing power to retain refunds where there are outstanding tax lodgements
Phoenix operators will be licking their lips
Why am I sceptical about the government’s legislation? Because it loses sight of what a reform package should be about.
There is no chance that this will dent the scale of phoenix activity in the media and marketing industry – or any other industry. The phoenix operators that have burned you in the past will be able to continue business as usual with minimum fuss.
Fair play to the government for these reforms, but what about the big picture? For example, the policing of phoenix activity is still left to ASIC (the financial services regulator) and company liquidators – both of whom are underfunded and don’t have much of a track record for pursuing phoenix activity.
What has really changed? Not much. There isn’t any funding for regulation and there isn’t a definition of what phoenix activity actually is. If a liquidator has no funding when they’re appointed, no one can compel them to investigate and pursue phoenix activity.
So the next time a partner or supplier burns you, don’t count on the government’s new rules to help you get your money back.
If you’re worried about how this new legislation will affect the media and marketing industry, the government is taking submissions until 27 September.
Ben Sewell is principal at Sewell & Kettle lawyers.
Good article Ben. Another point of note is that the director liability for GST will possibly extend the ATOs priority ranking and could possibly reduce payments available to unsecured Crs Post successful recovery proceedings.
Wes
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