Company directors and the order of the phoenix

Company directors and the order of the phoenix

The mythological phoenix was a magnificent bird that rose from the ashes to begin a new life. It has long been a go-to metaphor in the corporate sector, especially when businesspeople and entities rise from apparent ruin to flourish once more. However, the phoenix also describes a business practice that new Australian legislation is striving to stamp out. The so-called Phoenixing Act has been in place since February 18 and it carries ramifications for company directors.

The Australian Securities and Investments Commission (ASIC) describes illegal phoenix activity as when a new company is created to continue the business of an existing company that has been liquidated to avoid paying outstanding debts such as tax, creditors and employee entitlements.

It is a tactic that allows new entities to – phoenix-like – rise from the ashes, and it brings in aspects of commercial law around directorial duties, asset concealment/removal, and fraud. Yet despite the potential for hefty fines and even imprisonment, illegal phoenix activity has been a fairly common tactic. Hence the new legislation.

To give its full title, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Phoenixing Act) is aimed at:

  • preventing company directors from improperly backdating resignations
  • preventing situations in which companies are left without directors
  • holding directors and companies accountable if they do either, or both

ASIC is at the forefront of enforcing the Phoenixing Act. Call it the new order of the phoenix, but all company directors would be wise to familiarise themselves with how it works and what it means.

In a nutshell, as of February 18 a company director cannot backdate his or her resignation more than 28 days. Nor can they resign if it means a company is left without a director.

Furthermore, a resigning director or the company itself must notify ASIC of a director resignation within 28 days. Where this does not occur, ASIC will record the document lodgement date on the corporate register. In other words, if you resign on August 10 but fail to alert ASIC until December 10, the later date is the one that applies.

Limited exceptions are available. For example, if a director has acted responsibly and the company still fails, then activity may not be illegal. However, if you are seeking an exception, be prepared for rigorous scrutiny of your application.

At Ballantyne Law Group, we keep a close eye on all legislative reform around corporate compliance, with the Phoenixing Act being the latest to warrant rigorous attention.

After all, surely it is better to stay out of the fire altogether than to risk going down in flames.

Click here for full details of Australia’s new Phoenixing Act

If you would like to discuss any legal matters with our commercial lawyers on the Gold Coast or Brisbane, please contact us or call (07) 5606 7332.


Sidnee Jennings


Kathy Rundle

Special Counsel