Basics of the new CDD – Illegal Phoenixing Reforms

And here I thought CD’s were going the way of the dodo, insolvency law now has a CDD, or ‘creditor defeating disposition’, as a weapon to combat illegal phoenixing.

The law came into effect on 18 February 2020, but ONLY applies to dispositions entered on or after that date.

What is a CDD? See s 588FDA Corporations Act.

It is a disposition of property (or similar) not at market value or not at the best price reasonably available in the circumstances that either prevents, hinders or significantly delays the property becoming available to creditors.

A CDD must either occur whilst the company is insolvent or causes insolvency within 12 months of an external administration appointment.

A disposition can be presumed to be a CDD merely by you failing to retain sufficient books and records about the Company or the transaction for 7 years.

Only Liquidators and ASIC (a new power has been given to them) can recover CDD’s. However, a creditor may purchase the right to the legal claim against the perpetrator (message me if you’d like more details on this).

… I will be writing about this new law all week. Tomorrow I will take a look at what defences are available (including the big 553C set-off hole missed by Commonwealth Treasury).

Read more here:

  1. No express exclusion of set-off in the newly announced phoenixing offences: a missed opportunity!?
  2. Panel chat about untrustworthy advisors
  3. A glaring hole in the proposed new illegal phoenix recovery law
  4. Some Illegal Phoenixing Numbers

#illegalphoenix #directorduties #SVVoidables

3 comments

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  1. Dr Garry J Hamilton

    Warning by the Law Council of Australia about the possible constitutional invalidity of the new leglislation:

    Australian Securities and Investments Commission (ASIC) administrative recovery power
    (proposed section 588FGAA)
    12. The Law Council supports the Government’s proposal to make liquidator recoveries for creditors easier but does not support this proposed power on the basis that it raises multiple rule of law concerns by being too broad and arguably seeks to confer judicial power of the Commonwealth on ASIC.
    13. The Law Council notes that concerns about the similar Bankruptcy Act 1966 (Cth)
    provision (Bankruptcy Act) (section 139ZQ) have also been raised in prior cases. In
    Re McLernon; Ex parte SWF Hoists & Industrial Equipment Pty Ltd v Prebble,the
    court held that the section 139ZQ notice power given to the Official Receiver (OR) in
    Bankruptcy did not confer judicial power because the issue of the notice did not
    provide a final and determination of existing rights but rather conferred new rights that
    were subject to a de novo appeal by the court.
    14. The proposed new section 588FGAA confers a broad discretion on ASIC as to
    whether to issue a notice (subsection 588FGAA(5)), and specifically limits ASIC’s
    discretion if it believes that the court would not make an order (subsection
    588FGAA(4)). Furthermore, ASIC may determine what it believes represents the
    benefits received by the person or fairly represents the application of proceeds of the
    transferred property. These are powers that are far beyond the powers conferred on
    the OR under the equivalent Bankruptcy Act provision. Furthermore, the Court may
    only overturn the notice if it determines that section 588FGAA does not apply
    (subsection 588FGAE(3)). In the Law Council’s view, these elements make
    the proposed new power inappropriate as being too broad.

    Like

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