By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.
At the beginning of this year, the Australian Government enacted amendments to the Corporations Act 2001 (Cth) (“the Corporations Act”) which include a variety of new remedies available to liquidators, creditors and ASIC, aimed at combating “illegal phoenixing activity”. The new remedies target not only the directors of insolvent companies but also third parties involved in controlling or advising the directors in respect of certain transactions designed to defeat the claims of creditors against insolvent companies.
The legislation is the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) which came into effect as of 18 February 2020. The amendments introduce a new concept, called a “creditor-defeating disposition”. A new section in the Corporations Act, section 588FDB, defines a creditor-defeating disposition as a disposition of property of a company:
- For less than the lower of the market value of the property or the best price reasonably obtainable; and
- Which has the effect of either preventing, hindering or significantly delaying the property becoming available for the benefit of creditors in the winding up of the company.
A creditor-defeating disposition is one of a number of voidable transactions, alongside unfair preferences, unreasonable director-related transactions and the other existing types of voidable transactions under the Corporations Act. It adds to the armoury of a liquidator seeking to recover assets for the benefit of creditors. This is because section 588FE(6B) defines a creditor-defeating disposition as a transaction which is void against a liquidator, if:
- The company was, or became, insolvent and the transaction occurred (or was given effect to) within 12 months of the relation-back day (a technical term under the Corporations Act) before the company was wound up; or
- The company entered external administration within 12 months after the transaction was entered into, or an act was done giving effect to the transaction.
There are 2 significant matters arising from this provision which we will explore in a later blog, along with other dangers for anyone involved in acting or advising on the transfer of businesses.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Andrew Hack at firstname.lastname@example.org or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or email@example.com
Stephen Mullette on (02) 9806 7459 or firstname.lastname@example.org