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New laws to stop phoenixing

February 13, 2020

As a company director you should be familiar with the concept of illegal corporate phoenixing.

Illegal corporate phoenixing refers to a situation when a company operates in the usual way, taking money and incurring debts, but is placed in liquidation to purposely avoid paying those debts.

New laws are being introduced to address this problem and some of the changes will apply to every business trading a company.

What are the new phoenixing laws?

The new laws make it an offence for a company to transfer assets to another company before the first company is placed into liquidation. These ‘creditor-defeating dispositions’ may be reversed if the purchaser (being the other company) did not act in good faith and does not pay a fair price for the assets.

The new laws also introduce a criminal offences and civil penalties for:

  • 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.

Directors are now personally liable for GST

From 1 April 2020 the ATO will have the power to pursue directors, personally, for the unpaid GST of their company.

Laws already allows the Australian Taxation Office (ATO) to estimate a tax liability and penalise directors if that liability is not paid or the company is not placed into voluntary administration or liquidation.

The existing laws are being expanded to include GST liability and the power to estimate that cost if a company fails to lodge a business activity statement (BAS). If the director does not pay the outstanding tax, liquidate or place the company in voluntary administration, then they may be personally liable to pay the GST.

Guidance issued by the ATO suggests that the new powers would only be used when:

  • they have reasonable grounds to believe that the company is involved in illegal phoenixing behaviour, such as failing to lodge BASs and then failing to engage with the ATO when contacted to lodge their return or provide other information to the ATO, or
  • where property is being sold to avoid paying those the company owes money to.

ATO can retain tax refunds

The ATO will also have the power to withhold tax refunds where the taxpayer has failed to lodge a return or provide other information.
Resigning as a director

The new laws also regulate the date of resignation of a company director. Until recently a director could nominate the date of their resignation and effectively backdate it if desired. Now the director will have to notify ASIC within 28 days of the resignation or the date of resignation will be the date ASIC is notified (meaning receives the notice).

The new laws also prevents a director resigning if they are the only director of the company.

What are Director Identification Numbers?

Another measure likely to be introduced is a requirement for a director to have a director identification number (DIN). If this legislation is passed it will impose a new administrative requirement on everyone who becomes a company director.

Under the proposal, on proving your identity a company director will be issued with a DIN. A person can only hold one DIN and it will be an offence to apply for, or hold multiple DINs.

While a DIN will be required before a person can be appointed as a director of a company a transitional approach is proposed that would allow for existing directors to apply for a DIN and a 12 month period when new directors will have 28 days from their appointment to obtain a DIN.

For any further information or assistance contact HIA Workplace Services on 1300 650 620