Combating phoenix activities: law reform proposals under the Corporations Act 2001 (Cth)

Abstract

In 2012, the impact of phoenix activity on the Australia’s market economy was estimated by PWC to be as high as $3.19 billion per annum. The aim of the thesis is to assess the effectiveness of the current operation of the regulatory regime in curbing phoenix activities in Australia, with particular reference to the Corporations Act 2001 (Cth) (“Corporations Act”). In particular, the thesis seeks to explore whether a legal definition for the term “phoenix activity” and specific legal consequences for engaging in phoenix activity should be incorporated into the Corporations Act. The specific legal consequences considered include self-initiated remedies for early intervention of phoenix activities and proactive remedies for the Australian Securities and Investments Commission (“ASIC”) to take the appropriate regulatory actions. The significance of the thesis is to establish an appropriate theoretical framework to assess the effectiveness of the current laws in dealing with phoenix activities, and to propose law reform within the Corporations Act in order to combat phoenix activities. The theoretical framework chosen for the thesis is a combination of Ayres and Braithwaite’s pyramid of enforcement strategies and the DEFEAT test, which consists of Deterrence, Efficiency, Fairness, Expertise, Accountability and Transparency as factors in assessing the effectiveness of the current laws in dealing with phoenix activities. The thesis concludes by presenting five law reform recommendations with respect to the Corporations Act: (1) to propose a legal definition for the term “phoenix activity” within s 9 of the Corporations Act; (2) to include commercial transactions which led to, or may lead to, phoenix activities in the definition of uncommercial transactions under s 588FB of the Corporations Act; (3) to amend s 459A of the Corporations Act to allow those who have standing, to apply to the court to wind up phoenix companies; (4) to amend s 601AH of the Corporations Act to allow ASIC to reinstate, through the courts, deregistered companies that have been suspected of conducting phoenix activities; and (5) to introduce s 588GA of the Corporations Act to include both criminal and civil liabilities attached to directors who are found to have conducted phoenix activities.