Illegal Phoenix Activity: Is a 'Phoenix Prohibition' the Solution?
Company and Securities Law Journal, Vol. 35, No. 3, pp. 184-203, 2017
25 Pages Posted: 18 May 2017
Date Written: May 17, 2017
Phoenix activity is not inherently illegal but illegal phoenix activity is generally understood to be those actions, undertaken in the phoenix context, that breach laws because they involve wrongdoing. Because illegal phoenix activity continues to cause significant harm to creditors of companies, employees and revenue authorities, it is not surprising that many continue to suggest a specific phoenix prohibition as the answer. To date, however, this has not been achieved. This paper considers attempts to define or proscribe illegal phoenix activity before examining the existing laws, including directors’ duties that already prohibit this behaviour. Working on the belief that illegal phoenix activity continues because these ‘generalist’ laws are under-enforced in the phoenix context, we suggest a new approach. Rather than devising a new prohibition that describes the circumstances of illegal phoenix activity, the enforcement of the existing directors’ duties should be bolstered by removing the financial benefits of phoenix activity and by substantially increasing the relevant penalties. Our suggested amendments – if taken up by the government – send a valuable signal to wrongdoers that their behaviour will be severely punished, and to ASIC that this is an area in which enforcement can produce significant benefits.
Keywords: Phoenix Activity; Enforcement
Suggested Citation: Suggested Citation