Taxi! A cab-rank system for insolvency appointments?

Treasury yesterday released a consultation paper (available here) to provide further detail, and seek input, on the anti-phoenix measures announced on 12 September, and discussed here.

One of the most noteworthy proposals is option 9 – appointing liquidators on a ‘cab rank basis.’  This proposal is intended to address concerns that phoenix promoters will hand-pick a registered liquidator to ‘facilitate their client’s interests to the detriment of creditors.’  (Before moving on it is worth highlighting that a liquidator who did act to the detriment of creditors in that way would be in breach of their duties both under the Corporations Act and the ARITA Code of Professional Practice, and should be subject to prosecution by ASIC and disciplinary action by ARITA, if a member).

The proposal is to introduce a cab-rank for companies associated with a person designated as a “High Risk Phoenix Operator” by the Commissioner of Taxation (under the criteria and process outlined in the proposals paper).  Rather than select a liquidator of their choice such companies would be allocated a registered liquidator from a regionally based panel. That liquidator would effectively be guaranteed a  minimum level of public funding to ensure that matters were investigated and properly reported to both the creditors and to ASIC.

The paper notes that it is intended that the cab rank mechanism be restricted to circumstances where an HRPO is involved, but seeks feedback as to whether the cab rank should apply to all appointments.  It appears that the cab-rank mechanism is intended to apply only to liquidation appointments – HRPO-associated directors could appoint the voluntary administrator of their choice, but if the company passes into liquidation then that person will be automatically displaced.

There is no discussion of any restriction on the ability of HRPO-associated entities to arrange the replacement of the cab-rank liquidator.  Without such anti-abuse measures it would seem to be open to phoenix promoters use the simplified replacement regime to bring in a hand-picked appointee shortly after the initial appointment.

The paper also seeks feedback as to who should administer the cab rank.  There is a further question, albeit not asked here: what is the panel criteria?  ASIC already administers a stringent registration process (and an exclusion process where necessary), so presumably there will be no plans for another organisation, or another part of ASIC, to second guess that work.

Feedback is due by 27 October 2017.  It can be provided direct, and ARITA is also seeking member feedback.

Queensland is pursuing other measures to address phoenixing, discussed here.