Last year, amendments to the Corporations Act were made by the Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020 (Cth) ("Act") to combat the rise of phoenix companies.
The new laws, discussed below, increase the liability of directors and include:
Due to a year long transition period for certain amendments, the changes to director resignations come into effect from today.
Previously, ASIC would allow resignations of company directors to be backdated. Now, if ASIC is notified of a director's resignation more than 28 days after it occurs, the effective date of resignation will be the date ASIC receives notice of the resignation.
If you resign as a director, you should make sure that the company notifies ASIC immediately, otherwise you could end up being liable for conduct that occurs after you left the company.
Directors are also no longer allowed to resign if they are the last remaining director of the company. Except for certain extenuating circumstances, lodgements to cease the last appointed director will be rejected by ASIC, unless a replacement director is also appointed.
Illegal phoenixing occurs where a new company is created to continue the business of an existing company, which has been liquidated to avoid paying outstanding debts, including taxes. The directors of the existing company transfer its assets to a new company at less than market value. Once this has occurred, the existing company is liquidated, leaving no assets to sell to pay off creditors.
The changes coming into effect today impose increased liability on directors and ensure that phoenixing activity cannot be circumvented by simply resigning from the company.
Aside from the changes to director resignations, the Act:
Individuals can face a $495,000.00 fine and 10 years imprisonment, whereas a company could be hit with a fine of $4,950,000.00 or 10% of its annual turnover.
If you would like more information on this article, or you would like advice on your rights and obligations as a director, please contact Chris Kintis on 02 8235 1251.
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