ASIC steps up surveillance of phoenix companies
Wednesday, May 28, 2008/
As the economy slows, the Australian Securities and Investments Commission is stepping up its search for phoenix trading, whereby the directors of a distressed company transfer assets to a new company to avoid creditors.
ASIC has launched civil proceedings against North Sydney solicitor Timothy Donald Somerville and eight company directors over their involvement in alleged phoenix-style transactions.
The proceedings follow an ASIC investigation into eight non-related companies. ASIC alleges that the directors of those eight financially-distressed companies transferred business or assets to a new company controlled by the same directors.
In each instance, the assets of the distressed vendor company were transferred through a sale agreement signed by the same person, as director of both the vendor and purchaser companies. The vendor company was then placed into liquidation after the sale of its assets. ASIC contends that no tangible consideration was received from the sale of the assets, there were various unpaid tax debts, and that the business continued to operate under the name of the new company.
ASIC alleges that Somerville recommended the transaction to each of the directors, prepared the necessary documentation, including the sale agreements, and in most instances formed the new company.
ASIC says it is the first time that action has been taken against a promoter of a phoenix scheme. ASIC’s executive director of enforcement, Jan Redfern, said in a statement: “Phoenix activity is a significant issue and ASIC has broadened its focus in relation to misconduct to include not only company directors but also others who are involved in, or help facilitate, such transactions.”
Michael Quinlan, a partner at law firm Allens Arthur Robinson, says directors who find their business in trouble should not be tempted by phoenix trading. “There’s nothing wrong with putting your business it into voluntary administration. You clean it out and then you’ll get your business back.”
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