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Criminal and civil penalties for creditor-defeating dispositions: Illegal Phoenixing Amendments 2020 #6

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

As discussed in previous blogs in this series, both directors and external advisers have a duty to prevent creditor-defeating dispositions. Not only are they potentially liable for compensation, additionally they are liable for fines as well as it being a criminal offence. An offence could result in a maximum prison sentence of up to 10 years. The intention element is satisfied if a person has knowledge, intention or recklessness of the disposition being a creditor-defeating disposition.

The potential fines for a breach of the section can be severe. For individuals, the pecuniary penalty applicable is the greater of either 5,000 penalty units ($1.05m) or three times any benefit derived or detriment avoided because of the contravention.

For corporate bodies, the pecuniary penalty applicable is the greater of either:

  1. 50,000 penalty units ($10.5m);
  2. Three times any benefit derived or detriment avoided because of the contravention; or
  3. Continue reading…

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Defences to Creditor-Defeating Dispositions: Illegal Phoenixing Amendments 2020 #5

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In our last two blogs we discussed the liability on directors and third party facilitators for failing to prevent creditor-defeating dispositions. We now discuss the defences that may be available to directors and third party facilitators who would otherwise be liable.

Extension of market value

As mentioned in our previous blogs, the definition of ‘market value’ is extended to include the concept of the ‘best price reasonably obtainable’. The objective is to take into account circumstances where a company has an urgent need of cash-flow and may not be in a position to sell its assets at the market price, such as that deemed by a qualified valuer. If a company considers it is forced to sell off an asset which may be at a price less than real market value, due to time constraints in needing to realise cash, companies and advisers should consider making careful records evidencing the steps taken to attempt to realise it for as much of its market value as possible. This should include the circumstances the company was in requiring it to sell the asset potentially at under value.
Continue reading…

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Third Party Facilitators and Pre-Insolvency Advisers: Illegal Phoenixing Amendments 2020 #4

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In our last blog we discussed some of the implications of the new legislation designed to prevent ‘creditor-defeating dispositions’.

In addition to it being it being a voidable transaction, the new legislation puts a duty on the company’s director to prevent the company from entering into a creditor-defeating disposition. Section 588GAB of the Corporations Act 2001 (Cth) creates a personal liability on directors for damages and pecuniary fines, as well as being a criminal offence. In respect of pre-insolvency advisers, section 588GAC is a similar provision applying to any third party who ‘procures, incites, induces or encourages’ a company to make a creditor-defeating disposition of property. The explanatory memorandum states:

“The purpose of this prohibition is to address the actions of unscrupulous facilitators and pre-insolvency advisers, and other entities that, while not formally responsible for the management of a particular company, are responsible for designing and implementing illegal phoenix schemes.”

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Creditor-Defeating Dispositions and Some Implications: Illegal Phoenixing Amendments 2020 #3

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In this series of blogs we are looking at amendments to the Corporations Act arising from 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”. This is a transfer of assets for less than the best price obtainable, which hinders assets from being available in the winding up of the company, and where either (according to section 588FE(6B)):

  • The company was (or as a result of which it became), insolvent and the transaction occurred (or was given effect to) within 12 months of the relation-back day (a technical term under the 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.
  • Continue reading…