Harmful Phoenix Activity and Disqualification from Managing Corporations: An Unenforceable Regime?
Company and Securities Law Journal, Vol. 36, No. 2, pp. 169-174, 2018
6 Pages Posted: 25 Oct 2018
Date Written: January 1, 2018
Phoenix activity occurs where the business of a failed company is transferred to a second (typically newly incorporated) company and the second company’s controllers are the same as the first company’s controllers. Phoenix activity can cause significant harm to creditors and others. In combating harmful phoenix activity, one of the most important tools available to the Australian Securities and Investments Commission is the power to make administrative orders and seek court orders disqualifying persons from managing companies. These orders protect creditors and others who deal with companies from directors who are at higher risk of engaging in harmful phoenix activity and also potentially deter others from engaging in such activity. However, for management disqualification to be effective in protecting against and deterring harmful phoenix activity, people must comply with the disqualification. Currently, there are a number of factors that make it too easy for people to continue managing companies while disqualified. This research note identifies concerns regarding the enforceability of the management disqualification regime and suggests some possible improvements.
Keywords: Phoenix Activity; Disqualification; Enforcement; Australian Securities and Investments Commission
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