A glaring hole in the proposed new illegal phoenix recovery law

I was recently inspired to read the newly proposed phoenix law in full after seeing an announcement from ASIC about Mr Paul Joshua Flackmorr; a director recently convicted of illegal pheonixing.

Under the current law, a criminal offence of illegal pheonixing carries with it a maximum penalty of 100 penalty units or 2 year imprisonment, or both. 1 penalty units = $210, so $21,000.

Mr Flackmorr was not jailed, and was only handed a $900 fine. Even the maximum, doesn’t seem enough! Here is the ASIC announcement.

The new proposed law is not changing this.

Instead, and as you will read over the coming months, various new offences are being created. Here is a link to the new Bill.

One of these new offences, is where the glaring hole becomes evident. It includes a right for a liquidator to apply to ASIC to issue an order to a party (s588FGAA) that has received money or property at the Relevant Time and the receipt of same is a creditor-defeating disposition (CDD).

Relevant Time (s588FE(6A)) = when the company was insolvent, or caused the company’s insolvency or within 12 months of the external administrators appointment.

A CDD (s588FDB) may arise where property is prevented from being made available to creditors in unreasonable or uncommercial circumstances (a non-exhaustive basis).

It is ASIC’s discretion whether to issue such an order (s588FGAA(2)&(3)).

So what’s the glaring hole? s588FGAD provides that the amount payable under the ASIC order is recoverable by the company as a debt by action against that party. s553C anyone?

In effect, one of the best features of the CDD (ie no requirement to prove insolvency), is being hosed down by a possible ability for the party to rely on set-off under s553C. The only way to defeat this is to prove that set-off either does not apply at law to CDD’s or that the party had actual notice of insolvency.

To the Government, please amend 588FGAD to make it clear that 553C does not apply.

Also, note that an ASIC order can only be commenced by a liquidator, and no other formal appointee.

What do you think about the new law?




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