Clicky

New Anti-Phoenix Package: Will it be ‘last director standing’ for failing companies?

12 September 2017

The Government today announced that it is taking action to crack down on illegal phoenixing activity. The package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity.

BDO Tax Partner, Mark Molesworth, commented on the government’s package of anti-phoenix measures:

“The provision preventing directors from resigning where that will leave no directors for an entity, may lead to a ‘last director standing’ rush in situations where a company is showing signs of failure. That is, compared to the current law, directors may be more likely to want to resign earlier because, if they happen to be the last director, they will not be able to resign. This also has implications where the directors of a company fall out with the shareholders and the board is spilled,” Mr Molesworth said.

“The introduction of the DIN, if done well, has our support. Identity crime is a rising issue and anything that the regulators can do to seamlessly prevent such crime is to be encouraged. Of course, this will require that he security of the DIN system is first rate otherwise it runs the risk of identity fraud itself.”

“The extension of the director penalty notice regime to GST liabilities is troubling. Using this regime to ensure payment of ‘other people’s money’ – such as PAYG withholding and superannuation guarantee – is a defendable reason to pierce the corporate veil and make directors personally liable.

“Extending that personal liability to other tax liabilities of the entity is a large step because:

  • It militates against ordinary businesses and directors having a ‘licence to fail’ – which the government itself acknowledges is important in encouraging entrepreneurship and innovation.
  • It makes the government more likely to collect money out of an insolvency than ordinary creditors and, in some cases, employees.

As such, we will be scrutinising the proposed implementation of this measure very closely.”

“The other proposed measures appear to be reasonable responses to perceived issues. As always, the devil will be in the detail. We will be participating in the consultation to attempt to ensure that the rules strike the right balance between penalising criminal behaviour and not stifling entrepreneurship.”