The Proposed Deterrence of Phoenix Activity: An Opportunity Lost?
Sydney Law Review, Vol. 34, No. 3, 2012
27 Pages Posted: 9 Dec 2012
Date Written: December 9, 2012
In late 2011, the Federal Government released draft legislation designed to tackle the abuse of the corporate form through phoenix activity, where a new company arises from the ashes of its failed predecessor. One of the laws has already been enacted while the other is not listed for debate in the current Parliament. While these are a step in the right direction, the former gives the Australian Securities and Investments Commission power to order the liquidation of dormant companies, and the other only deals with successor companies with similar names. These measures fail to confront the wider issues of improper phoenix activity, and are easily sidestepped. This article makes the case that the efficacy of present laws first needs to be assessed to determine whether the actual problem is a lack of enforcement. If it is accepted that new laws are needed to tackle phoenix activity properly, the government should look at successful international provisions which, for example, reverse the onus of proof on the qualification of directors of failed companies, or pierce the corporate veil on parent companies which have acted inequitably in relation to the creditors of their subsidiaries.
Keywords: corporate law, phoenix activity
JEL Classification: K00, K22
Suggested Citation: Suggested Citation