Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (6 of 2020)

Schedule 1   Phoenixing offences and other rules about property transfers to defeat creditors

Part 1   Main amendments of the Corporations Act 2001

Corporations Act 2001

33   After section 588G

Insert:

Subdivision B - Duties to prevent creditor-defeating dispositions

588GAA Object of this Subdivision

The object of this Subdivision is to deter the practice (which may form part of the activity sometimes called phoenixing) of disposing of a company's assets to avoid the company's obligations to its creditors.

588GAB Officer's duty to prevent creditor-defeating disposition

(1) An officer of a company must not engage in conduct that results in the company making a creditor-defeating disposition of property of the company, if:

(a) the company is insolvent; or

(b) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition; or

(c) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2) of the company occurs as a direct or indirect result of the disposition; or

(d) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition.

Note 1: Failure to comply with this subsection is an offence: see subsection 1311(1).

Note 2: Recklessness is the fault element for the result of the company making the creditor-defeating disposition and for paragraphs (1)(a), (b), (c) and (d): see section 5.6 of the Criminal Code.

(2) An officer of a company must not engage in conduct that results in the company making a disposition of property of the company, if:

(a) one or more of the following applies:

(i) the company is insolvent;

(ii) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition;

(iii) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2) of the company occurs as a direct or indirect result of the disposition;

(iv) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition; and

(b) the officer knows, or a reasonable person in the position of the officer would know, that the disposition is a creditor-defeating disposition.

Note 1: This subsection is a civil penalty provision (see section 1317E).

Note 2: Section 588E provides for presumptions about when a company is insolvent and about matters relevant to whether a disposition is a creditor-defeating disposition.

Exceptions

(3) Subsections (1) and (2) do not apply if the disposition was made:

(a) under a compromise or arrangement approved by a Court under section 411; or

(b) under a deed of company arrangement executed by the company; or

(c) by the company's liquidator; or

(d) by a provisional liquidator of the company.

Note: Section 588GA also provides for subsections (1) and (2) of this section not to apply if the disposition was connected with a course of action likely to lead to a better outcome for the company.

588GAC Procuring creditor-defeating disposition

(1) A person must not engage in conduct of procuring, inciting, inducing or encouraging the making by a company of a disposition of property that results in the company making the disposition of the property, if:

(a) one or more of the following applies:

(i) the company is insolvent;

(ii) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition;

(iii) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2) of the company occurs as a direct or indirect result of the disposition;

(iv) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition; and

(b) the disposition is a creditor-defeating disposition.

Note 1: Failure to comply with this subsection is an offence: see subsection 1311(1).

Note 2: Recklessness is the fault element for the result of the company making the disposition and for subparagraphs (1)(a)(i), (ii), (iii) and (iv) and paragraph (1)(b): see section 5.6 of the Criminal Code.

(2) A person must not engage in conduct of procuring, inciting, inducing or encouraging the making by a company of a disposition of property that results in the company making the disposition of the property, if:

(a) one or more of the following applies:

(i) the company is insolvent;

(ii) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition;

(iii) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2) of the company occurs as a direct or indirect result of the disposition;

(iv) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition; and

(b) the person knows, or a reasonable person in the position of the person would know, that the disposition is a creditor-defeating disposition.

Note 1: This subsection is a civil penalty provision (see section 1317E).

Note 2: Section 588E provides for presumptions about when a company is insolvent and about matters relevant to whether a disposition is a creditor-defeating disposition.

Exceptions

(3) Subsections (1) and (2) do not apply if the disposition was made:

(a) under a compromise or arrangement approved by a Court under section 411; or

(b) under a deed of company arrangement executed by the company; or

(c) by the company's liquidator; or

(d) by a provisional liquidator of the company.

Note: Section 588GA also provides for subsections (1) and (2) of this section not to apply if the disposition was connected with a course of action likely to lead to a better outcome for the company.

Subdivision C - Safe harbour from breach of duties