Proposed new laws – Personal Liability for Phoenix Companies
The move by regulators towards more personal liability for company directors continues. Again the focus is on Phoenix Companies and Personal Liability. Directors received a reprieve on other proposed new laws but Treasury recently released an Exposure Draft for proposed new laws for “Phoenix and Other Measures”. They’re interesting amendments. They won’t catch all Phoenix activity, and won’t be too difficult to avoid for the slightly tricky Phoenix operator, but it is a further move to personal liability for some directors.
Here is the main points of the proposed legislation:
- It tries to identify Phoenix companies and make a director and the NewCo liable for the debts of the NewCo;
- It hangs its hat on the name of the OldCo and NewCo – if the name is “the same” or “so similar as to suggest an association” then the NewCo is caught by the legislation;
- So, if the NewCo has the same name as the OldCo then the director of the NewCo is personally liable for all debts of the NewCo for 5 years;
- So, it does not seek to help or recover funds for the creditors of the OldCo but squarely puts the Director of the NewCo in the firing line;
I’d therefore look at the proposed legislation as saying to Directors ….. you can do it once, but if you do, you’ll be on the hook for all debts of your NewCo, so don’t mess up again.
What it is not doing is trying to identify Phoenix activity broadly. It’s quite specific on the naming issue. But at least it is an attempt to partly define what a Phoenix company is – there is no existing definition of a Phoenix company in the Corporations Law or the Tax Act. Could it have been broader – well, yes.