New anti-phoenix measures

Not to be outdone by the Queensland Government – which tabled legislation in the last week of August to safeguard against construction industry phoenixing, discussed here – the Federal Government today issued a media release announcing a range of measures intended to address ‘illegal phoenixing.’

The most developed initiative appears to be a proposal to introduce a unique Director Identification Number (DIN) – a reform proposed by Professor Helen Anderson and advocated by ARITA.  Although the release does not address this point it, seems that there will be some kind of bank-style 100 point identification regime; and the release did refer to the use of the DIN to cross-reference against government databases, to allow ‘mapping’ of relationships.

The announcement also flags consultation about a range of other possible measures intended ‘to deter and disrupt the core behaviours of phoenix operators,’ including:

• The introduction of specific ‘phoenixing offences’
• A single point of contact for reporting illegal phoenix activity
• Extension of the director penalty provisions, to cover GST liabilities
• Applying tax avoidance promotion penalties to those promoting phoenixing
• Prohibiting related entities to the phoenix operator from appointing a liquidator.

There will be a focus on identifying ‘high risk individuals’ – if not a ‘blacklist, a ‘greylist,’ it seems – who may:

• Be required to provide the ATO with a security deposit.
• Not be allowed to appoint the liquidator of their choice.
• Be the subject of immediate recovery action following the issuance of a Director Penalty Notice.

It is not completely clear what ‘Prohibiting related entities to the phoenix operator from appointing a liquidator’ means – but laws that prevent the appointment of a liquidator to an insolvent company will require careful thought, especially given their potential to intersect with the laws that require directors to make an appointment to avoid personal liability.

A proposal to prevent ‘high risk individuals’ from appointing the liquidator of their choice may be less effective than hoped.  The ILRA changes that made it easier for creditors to replace a liquidator surprisingly did not include any anti-abuse measures, and so a restriction on appointment may need to be accompanied by a comparable restriction on replacement.

The release explains that the government intends to open a consultation process shortly.

Update: The consultation process began on 28 September 2017, with responses due by 27 October 2017.  Two of the specific measures are discussed in Taxi! A cab-rank system for insolvency appointments? and Department of Liquidation? The possible creation of a Government Liquidator…