- The Australian Government has introduced new laws to help combat illegal phoenix activity.
- Directors need to act diligently to ensure that a company’s records are kept up to date and appropriate forms are lodged with ASIC in a timely fashion.
Illegal phoenix activity:
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 was enacted in February 2020 to help combat illegal phoenix activity.
Illegal phoenix activity involves forming a new company to continue the business of an existing company that has been purposefully liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements.
Reforms coming into effect 18 February 2021:
The reforms prohibit company directors from improperly backdating their resignation or leaving a company with no directors.
Under newly commenced section 203AA of the Corporations Act 2001 (Cth) (Corporations Act), a resignation of a director takes effect:
- The day the person stopped being a director if ASIC is notified within 28 days after the day the person stopped being a director of the company, or
- In any other case – the day written notice is lodged with ASIC stating that the person has stopped being a director of the company.
Therefore, if the written notice is lodged after 28 days of the day the person stopped being a director, the resignation takes effect on the day the written notice is lodged.
For example, if a director resigns on 1 March 2021 and does not notify ASIC of their resignation until 1 August 2021, ASIC will record their resignation as 1 August 2021 on the corporate register. To fix an earlier date, the company or director must apply to ASIC or the court.
Applications to ASIC should be made within 56 days of the claimed registration date. Applications to the court should be made within 12 months of the claimed resignation date, unless the court allows a longer period.
If the court order is granted, you must submit this to ASIC along with Form 105 Cover page for an office copy of a court order within two business days. If you do not meet this deadline, late fees will apply.
The reforms also prohibit companies from removing the last remaining director on ASIC records, leaving a company with no directors. ASIC will reject submissions of Form 484 Change to company details or Form 370 Notification by officeholder of resignation or retirement to cease the last appointed director without replacing that appointment.
Disrupting illegal phoenix activity:
These reforms assist the joint effort of ASIC and other government agencies in detecting, deterring and disrupting directors and advisers who engage in illegal phoenix activity.
Illegal phoenix activity can involve serious breaches of the law that include directors' duties, fraudulent concealment or removal of assets and fraud by company officers under the Corporations Act 2001.
