The ASIC is currently taking steps to combat illegal phoenix activity. The ASIC has advised “illegal phoenix activity is a serious crime and may result in company officers (directors and secretaries) being imprisoned.
The ASIC defines illegal phoenix activity as:-
Illegal phoenix activity involves the intentional transfer of assets from an indebted company to a new company to avoid paying creditors, tax or employee entitlements.
The directors leave the debts with the old company, often placing that company into administration or liquidation, leaving no assets to pay creditors.
Meanwhile, a new company, often operated by the same directors and in the same industry as the old company, continues the business under a new structure. By engaging in this illegal practice, the directors avoid paying debts that are owed to creditors, employees and statutory bodies (e.g. the ATO).
In circumstances where the ASIC identifies illegal phoenix activity it may commence enforcement action against company officers, including prosecuting officers for breaches of their duties under the Corporations Act 2001 (Cth) or disqualifying directors from managing corporations for a period of time.
Company directors should note that not all transfers of assets between companies will be classified as illegal phoenix activity and if a transfer is done appropriately, including being for valuable current consideration, a transfer of assets may not result in a director breaching his or her duties and the transaction may not be voidable in the result of liquidation. However, company directors should obtain appropriate advice from a qualified professional prior to entering into any such transaction.