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31 Jan 2012

Draft Bill to combat phoenix activity released


2 min

Additionally to the Phoenix Bill released for comment on 20 December 2011, another Bill has been proposed to meet previous election commitments regarding the Protecting Workers’ Entitlement Package.

The Corporation Amendment (Similar Names) Bill 2012 seeks to reduce phoenix activity by providing that a director of a failed company can be held liable for the debts of a new company that has a similar name to that of a failed company. This potential liability will apply where:

  • the director was a director at any time in the 12 months prior to liquidation of the first company; and

  • debts are incurred by the new company within five years after the start of the winding up of the earlier company and the second company is liquidated.

Phoenix activity is typically associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The director then places the initial company into administration or liquidation with no assets to pay creditors.

Although this legislative initiative, if adopted, may assist creditors of a new similarly named company, it will do nothing to assist the creditors of the first company in liquidation. Given this, we wonder if a better approach would not be to strengthen the director liability provisions to protect creditors in the first instance.

This Bill is open for public comment until 29 February 2012.

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