Combating illegal phoenix activity with funding for liquidators
With the significant media attention phoenix activity has received in the last 12 months, it is clear 2018 was the year for a major government crackdown in an effort to stamp out this economically expensive and unscrupulous business practice. Several new initiatives were announced in a multipronged approach to not only target the directors who engage in phoenixing, but also those advisors and complicit creditors who assist them.
The latest of these was the Morrison Government’s announcement on 11 December 2018 introducing new Insolvency Practice Rules and increased funding for the Assetless Administration Fund.
This fund, administered by the Australian Securities and Investments Commission (ASIC) to finance liquidator investigations and reports into the failure of companies with limited to no assets, will receive a $8.7 million boost spread over a four-year period to assist ASIC’s prosecution of instances of fraudulent phoenix activity. This will increase the fund’s resources to $5.8 million for 2018-2019 and $6.98 million for the two following financial years.
This increase in funding will give liquidators another avenue for financing the work required to be able to investigate and report to ASIC on illegal phoenix activity and to recover assets that have been stripped from an insolvent company in order to defeat creditors. As per communication from ASIC’s Insolvency Practitioners Stakeholder Team, this funding is earmarked to enable:
- Liquidators investigating and reporting misconduct which may warrant ASIC enforcement action or director banning.
- Liquidators recovering assets alienated from a company through suspected illegal phoenix activity.
- ASIC appointing liquidators to abandoned companies.
- ASIC appointing a reviewing liquidator where illegal phoenix activity is suspected.
Liquidators will be required to complete criteria to obtain funding approval. These criteria are currently under review.
For more information on illegal phoenix activity and other government actions, please visit our website or contact your local Worrells partner.