At the Coalface of Corporate Insolvency and Phoenix Activity: A Survey of ARITA and AICM Members

Abstract

This research note presents the findings of surveys of members of the Australian Restructuring, Insolvency and Turnaround Association and the Australian Institute of Credit Management regarding illegal phoenix activity and related issues. Phoenix activity occurs where a successor company arises from the ashes of its failed predecessor and the successor company’s controllers and business are essentially the same as those of the predecessor. Phoenix activity is illegal where the controllers’ intention is to shift assets from the predecessor company to the successor company to avoid liabilities such as unsecured debts, employee entitlements, taxes, adverse court judgments and fines. Key findings of the surveys included that illegal phoenix activity is commonplace and where it occurs, significantly reduces returns to creditors. Respondents also expressed concerns regarding the adequacy of both laws and enforcement and offered views on several law reform proposals.

Keywords: Phoenix activity, insolvency