ASIC has put company directors and the insolvency industry on notice that it intends to take full advantage of proposed new laws dealing with illegal phoenix activity.
Illegal phoenix activity is where a new company is created to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements. A Government report estimated that the costs the economy between $2.85 billion to $5.13 billion each year.
SIC has re-issued Information Sheet 29 External administration, controller appointments and schemes of arrangement – most commonly lodged forms (INFO 29) to help liquidators comply with their lodgement requirements.
The information sheet reflects the changes made to the Corporations Actby the Insolvency Law Reform Act 2016 and follows liaison with the Australian Restructuring Insolvency Turnaround Association (ARITA) about the revisions.
ASIC Commissioner John Price said it is important that external administrators comply with their lodgement and publication requirements under the law.
‘ASIC’s guidance is aimed at helping liquidators manage their reporting and lodgement requirements to assist the multiple parties often impacted by company insolvencies to have timely access to information’, Mr Price said.
INFO 29 contains 13 updated flowcharts to help external administrators, controllers and scheme administrators meet their obligations and outlines our expectations for forms commonly lodged with ASIC and certain publication requirements when:
- an external administrator (liquidator, voluntary administrator or deed administrator) has been appointed to a company;
- a controller (receiver, receiver and manager, controller or managing controller) has been appointed over company property; and
- an administrator of a scheme of arrangement has been appointed.
It provides guidance to external administrators on:
- using our flowcharts for form lodgements, to help understand when certain forms must be lodged;
- using the registered liquidator portal, which is the fastest and most accurate way of lodging forms if you are a registered liquidator;
- using the ASIC published notices website for notices; and
- specific commonly lodged forms.
Andrew Fielding, National Leader for BDO’s business restructuring team, said liquidators often see potential illegal phoenix activity but don’t have the funding to chase it up.
“There are a lot of pre-insolvency advisors around, not necessarily licensed liquidators, and they advise directors and often the directors themselves don’t know phoenixing can be an illegal transaction,” he said.
“Pursuing the insolvency advisors is probably the best way to deal with phoenixing.
“Tougher legislation would have limited impact without funding for liquidators for investigation.
“It still comes down to someone having to investigate and prove the phoenix,” he said. “Who is going to fund the liquidator to come up with the proof? The frustration here is being a liquidator and not being able to do the investigation.”