On 21 November 2011, a Bill was passed by the House of Representatives with a view to counter phoenix activities by company directors – that is, preventing the practice of winding up a company and avoiding its liabilities only to continue the same business in a new "risen" company.  However the legislation was not in the form that it was initially introduced.  

There were claims that the protectionist provisions of the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 (Bill) went too far and could result in innocent directors being caught in its net.  These claims were considered by the House of Representatives Standing Committee on Economics (Committee), which received evidence from concerned business groups who suggested that the Bill should be tightened to give honest directors comfort that they would not inadvertently be targeted.  

In the end, whilst expressing support in principle to deter companies from engaging in fraudulent phoenix activities, the Committee heeded these concerns and recommended that the Bill be passed following deletion of the offending provisions, contained in Schedule 3 to the Bill.  This recommendation was picked up by the Commonwealth Government, which removed Schedule 3 in order to "allow further consultation… to ensure that the proposed amendments do not affect company directors inappropriately in certain circumstances".   
 
The Bill was subsequently passed (in its amended form) by the House of Representatives.  It now moves to the Senate.
 
The Government has advised that the provisions of Schedule 3 will be reconsidered in early 2012, following further consultation with relevant stakeholders.  It will be interesting to see whether this consultation results in a narrowing or weakening of the proposed obligations on directors.  The Insurance Flashlight Team will report further on these developments as they occur.

This update was co-authored by DLA Piper Senior Associate, James Morse

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Posted by Jacques Jacobs on Wednesday 07 Dec 2011
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