On 17 February 2020, the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 received royal assent. The Bill amended the Corporations Act 2001 (Act) and Tax Administration Act 1953 to impose new duties and liabilities on officers. This alert focuses on the introduction of the new duty on officers to avoid property dispositions which have the effect of defeating creditors.
From 18 February 2020, officers have a duty to avoid creditor-defeating property dispositions. Transactions will be ‘creditor-defeating’ dispositions if:
- the consideration payable to the company for the disposition is less than the lesser of:
a. the market value of the property;
b. the best price that was reasonably obtainable for the property, having regard to the circumstances existing at the time; and
- the disposition has the effect of preventing the property from becoming available for the benefit of the company’s creditors in a winding up of the company or hindering, or significantly delaying, the process of making the property available for the benefit of the company’s creditor’s in the winding up of the company.
Officers can now be exposed to penalties of up to 10 years imprisonment or civil penalties of up to $945,000 per breach of the duty to prevent creditor-defeating dispositions where:
- the disposition occurs when the company is insolvent;
- the company becomes insolvent because of the disposition or a number of dispositions made at the same time of the relevant disposition
- less than 12 months after the disposition, an external administration of the company starts as a direct or indirect result of the disposition;
- less than 12 months after the disposition, the company ceases to carry on business (either directly or indirectly as a result of the disposition).
In addition to the above, the court may order an officer to pay compensation to the company if the court is satisfied that the officer has contravened the duty, and a creditor has suffered loss or damage because of the disposition and the company’s insolvency.
It is now more important than ever for officers to be aware of the financial position of the companies of which they control to ensure the company has the capacity to meet its debts as and when they fall due where sale of an asset is being considered. GRT Lawyers can assist you in understanding your duties and obligations as officers and ensuring transactions will not expose you to breaches of these amendments.