The Morrison government has recently introduced a range of measures designed to prevent illegal phoenixing activities. The Corporations Act 2001 (Australia’s major legislation for companies) has been amended accordingly.
The amendments were passed by federal parliament in February 2020, and a one-year transitional period applies. The new changes came into effect on 18 February 2021.
What is illegal phoenixing?
Illegal phoenixing gets its name from a bird in Greek mythology and the associated expression ‘to rise like a phoenix from the ashes’. The expression has evolved to mean ‘emerging from a disaster in a different form’.
In the corporate context, illegal phoenixing is where a new company is created by directors in order to continue the trading of their company when it has been wound up, to avoid paying its debts. Those debts could be to staff, creditors and/or the Australian Taxation Office.
How will the amendment help to prevent illegal phoenixing?
Two provisions of the amendment are intended to help prevent illegal phoenixing.
Firstly, one provision will close a loophole in Australia’s Corporations Act that enabled unscrupulous directors to avoid taking responsibility for company failures. They could do this by backdating their resignations so they weren’t perceived as being directors when the company failed.
The amended legislation now requires directors to formally lodge their written resignations with the Australian Securities and Investments Commission (ASIC), Australia’s corporate regulator, within 28 days of resigning.
If this requirement is not met, the date of resignation will be deemed as the date the written resignation is lodged with ASIC. A late fee will also apply for late lodgement.
Secondly, the amended legislation also includes a provision that directors are not able to resign if their resignation would leave their company with no director, unless the company is in the process of being formally wound up and will not continue trading. This closes another loophole that previously existed.
How to resign as a company director
If you need to resign as a company director, you can do it in one of two ways:
- Your company can complete Form 484 online at ASIC’s website on your behalf. The person lodging will need to use your company’s corporate key to do this (a unique 8-digit number).
- You can do it yourself by downloading Form 370 from ASIC’s website, completing it, and posting it to ASIC. You will not need your company’s corporate key to do this. A copy of your resignation letter must be submitted with the form.
Are there any other legislative changes I should know about as a company director?
This change to director resignation requirements is in addition to the director identification number scheme that has been legislated to commence soon.
How we can help
Contact us if you need any advice on how these legislative changes will affect you as a company director and/or your business.
Our experienced team of specialists in Richmond can also help with any other business accounting or tax services you may require. We are a full-service accounting firm and can tailor our services to suit your specific needs.