Illegal Phoenix Transactions

Shifting assets from one company to another must be done correctly otherwise it is Illegal.

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Know your Duties as a Director and how to avoid Insolvent Trading and Illegal Phoenix Transactions.

Avoiding Phoenix Transactions

ASIC and the Federal Government are very concerned about illegal activity by directors of companies: Specifically, phoenix transactions. Don’t find yourself in court for phoenix transactions.

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Staying within the Law

A Phoenix transaction typically involves the illegal transfer of the assets from one company (with overwhelming debt) into another, for little or no consideration, for the purpose of avoiding paying creditors.

While the assets and business operations are transferred into the new company for little or no money, the debts remain in the old company.

The creditors of the old company have no direct recourse against the new company that now holds the assets. Creditors may only attack the old company and seek to have a liquidator appointed who will then investigate the alleged phoenix transaction.

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Liquidators will investigate and report phoenix transactions

Once a liquidator is appointed, he will investigate an alleged phoenix transaction and he will report on same to both the creditors and to the ASIC. A phoenix transaction is illegal. It is designed to leave no assets or funds available in the old company. This should never be contemplated.

Liquidators will report an alleged phoenix transaction

Liquidators who encounter phoenix transactions have a number of options. First, they may seek creditor assistance and funding. A liquidator may also make a claim for funding under the Assetless Administration Fund – a fund designed to enable liquidators report and take action against directors.

Liquidators will report breaches of directors duties

An illegal phoenix transaction is a breach of directors duties in terms of breaching the duty of:

  • diligence and good faith
  • not making improper use of position

Penalties for Phoenix Transactions

Directors that engaged in illegal phoenix transactions may be liable for:

  • Civil Penalties: up to $200,000 and a compensation order for the loss caused to the company.
  • Criminal Penalties: fines and imprisonment
  • Director Banning : disqualification for up to 10 years

Illegal phoenix activity involves the intentional transfer of assets from an indebted company to a new company to avoid paying creditors, tax or employee entitlements. Don’t get caught out.

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