Corporate GovernanceLaw

New laws introduced to target illegal phoenix activity

By 19 February, 2021 No Comments

The Australian Government has introduced new laws targeting illegal phoenix activity (Phoenixing).

From 18 February 2021, company directors will be inhibited from backdating their resignation date by more than 28 days, and will be inhibited from resigning if doing so would result in the company being without a director.

The reforms seek to inhibit the backdating of resignations, a common tactic utilised by directors to engage in illegal phoenix activity (Phoenixing).

What is Phoenixing?

Whilst Phoenixing is not defined in the Corporations Act 2001 (Cth), it is the process of transferring a company’s assets to a new entity before liquidating the company. In doing so, the company avoids liability of outstanding debts.

The process of restructuring a business into a new entity is not, in and of itself illegal. Illegality arises from the defrauding of creditors and serious breaches of the Act in respect of directors’ duties and fraud by company officers.

Debt to creditors is not the only resulting detriment. Employee wages, superannuation and entitlements, suppliers or sub-contractors and industry competition are all extinguished by Phoenixing. It is estimated Phoenixing costs the federal government $600 million,[1] and the overall economy between $1.78 to 3.19 billion per year.[2]

The Reforms

What are the reforms and who will be effected?

In February 2020, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Act) was introduced in an effort to crackdown on Phoenixing. The Act empowers the Australian Securities and Investments Commission (ASIC) and other government agencies to issue civil and criminal penalties to company directors, secretaries and others found to be involved in such activity. Penalties include hefty fines and up to 15 years’ imprisonment.

The new laws applying from 18 February 2021 will affect director resignations and cessations for all companies and its officeholders.

Companies will be required to notify ASIC of a director’s resignation within 28 days (Notice Period). If ASIC does not receive notice of a director’s resignation or cessation within the Notice Period, it may deem the director to have continued as the director beyond the date of the resignation or cessation.

Where a notice is lodged after the Notice Period, the lodgement date will replace the resignation’s effective date. Effectively, a director’s resignation may only be backdated by a maximum period of 28 days, unless an application is made to the court or to ASIC.

What happens if ASIC is not notified within the Notice Period?

The director’s liability will extend beyond the resignation date. Where backdating is required, the company will be required to apply to ASIC within 56 days of resignation or the Court within 12 months of the asserted resignation date.

Exceptions include where the remaining director is deceased, the director never consented to the original appointment, or the effective date is on or after the day the company begins winding up.

What should companies do to comply when changing officeholders?

From 18 February 2021, when considering a restructure of directors and secretaries it is vital to ensure:

  • ASIC is notified of the officeholder’s resignation, retirement or cessation within 28-days using Form 484 Change to company details, or Form 370 Notification; and
  • A replacing officeholder is appointed.

If you wish to seek advice about restructuring your company, please don’t hesitate to reach out to us on or call us on (08) 6188 3340.