Major legislative reforms for companies and directors have been introduced with the passing of the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019. The amendment was passed by both houses of Parliament on 5 February 2020 in response to the problems arising from illegal phoenix activity (the transfer of assets from a failed or insolvent company to a new company to avoid paying debts).
Amendments have been made to the Corporations Act 2001, Taxation Administration Act 1953 and A New Tax System (Goods and Services Tax) Act 1999, with the changes to apply prospectively from 1 April 2020. The amendments aim to respond to the serious problem of non-payment of corporate GST liabilities and put in place stricter measures to protect against illegal phoenixing.
Phoenix companies have consistently attracted attention given the risk of these companies escaping liability for illegal and unethical behaviour. The long-awaited legislation introduces several insolvency law reforms, expanding the obligations and personal liabilities of company directors in order to reduce the evasion of debts and to ensure greater protection for the interests of creditors.
- Director penalty regime (DPN): Directors are personally liable if they fail to ensure the company complies with their tax liabilities. Tax liabilities extend to the company’s unpaid GST, luxury car tax (LCT) and wine equalisation tax (WET).
- GST obligations: Directors are to comply with their GST obligations for the timely lodgement of activity statements and GST returns, and the prompt payment of the amounts and GST instalments.
- Improper director resignation: A director may not resign if that means the company will be left without a director.
- Resignation backdating: Resignation applies from the date the notice was received by the ASIC, not the date of lodgement.
- Parallel liabilities: Director penalties have parallel liabilities for companies with multiple directors.
- New and former directors: Directors remain liable after their resignation as a director for director penalties which were due either on or before the date of resignation, if the relevant tax period ended before that date. Liability also extends to amounts due before a director’s appointment.
- The Commissioner of Taxation can collect estimates of GST, LCT and WET. These estimates are distinct from the actual underlying liability of the taxpayer.
- New criminal offences and civil penalty provisions for preventing “Creditor-defeating dispositions” of company property have been introduced. This applies to company officers that fail to prevent or facilitate the company in making creditor-defeating dispositions.
- The Australian Securities and Investments Commission (ASIC) are enabled to make orders to recover company property disposed of or benefits received under a voidable creditor-defeating disposition, for the benefit of company creditors.
- The DPN now extends to net amounts and assessed net amounts, comprising GST, LCT and WET – for tax periods, and GST instalments.
- The Commissioner can retain tax refunds where a taxpayer has failed to lodge a return or provide other information that may affect the amount of a refund.
The amendments are a positive step to deter illegal phoenix activity and ensure directors uphold their corporate responsibilities through stricter regulations. It is important for directors and responsible staff members to stay well-informed of their obligations, liabilities and entitlements in order to adequately protect their company’s assets.