In Peter Grossman v Australian Securities and Investment Commission [2011] AATA 6, the Administrative Appeals Tribunal upheld a 5 year disqualification period against former director Mr Grossman who was at the helm of 3 companies that met financial demise. The Tribunal affirmed ASIC’s decision to grant the maximum disqualification period made pursuant to s 206F of the Corporations Act which was returned after finding Mr Grossman participated in phoenix activities deemed to lack commercial morality and blatantly disregard the interests of creditors.

We recently released an e-alert on the law reforms on directors’ derivative liability. Although not directly part of the derivative liability reforms, the close of 2011 and the first half of 2012 has seen a variety of exposure drafts, submissions, and parliamentary jostling over another key area of directors’ liability – the Federal Government’s law reforms to counter phoenix activities.

Under section 596B of the Corporations Act 2001 (Cth) (Act), liquidators and other eligible applicants can apply to the Court for orders to examine certain persons in connection with the affairs of a corporation. Under section 596C, the affidavit in support is not available for inspection unless a court otherwise orders.

In the case of Sutherland v Pascoe; Re Matrix Group Ltd(as trustee for the Matrix Group Unit Trust (in liq)) [2012] FCA 453, the Federal Court granted examinees access and discussed the applicable principles.

At the end of 2011, the Federal Government introduced two draft Bills directed at clamping down on companies that engage in “phoenix” activity.

In our March 2012 Insurance Update we considered the potential widening of the scope for creditors to claim damages against a director personally for contravention of the Corporations Act 2001 (Act). The Supreme Court of Queensland awarded Phoenix Constructions over $1.2 million in damages against Mr McCracken for contravention of s 182 of the Act. This decision, a first of its kind, was appealed by Mr McCracken.

Background: the Timbercorp Group

The statutory exemption can be refreshed each time a person signs a new contract, even if he/she continues to hold the same position.

Receivers of a failed company have been unable to convince the Federal Court that statutory restrictions on termination payments reduced the payout entitlement of a senior executive (White v Norman; In the Matter of Forest Enterprises Australia Limited (Receivers and Managers Appointed) (in Administration) [2012] FCA 33).

Background

The Corporations Amendment (Phoenixing and Other Measures) Bill 2012 (Cth) was introduced into Federal parliament on 15 February 2012.

The Bill proposes to amend theCorporations Act 2001 (Cth) and contains 2 key sets of measures:

The Federal Government has introduced the Corporations Amendments (Similar Names) Bill 2012 which will be directed at companies that engage in ‘phoenix’-related activities through imposing personal liability on directors.  

The Bill seeks to impose liability for payments on the director behind the failed company to ensure they do not exploit the concept of limited liability. These measures rely on the notion that many phoenix companies use similar trading names as the company that was liquidated.  

Introduction

On 26 November 2010, the Federal Parliament passed the Corporations Amendment (Sons of Gwalia) Bill 2010 (“Bill”). The Bill amends section 563A of the Corporations Act 2001 (Cth) (“Act”) such that any claim brought by a person against a company that arises from the buying, selling, holding or other dealing with a shareholding will be postponed in an external administration until all other claims have been paid. The Bill has the effect of reversing the High Court decision of Sons of Gwalia v Margaretic [2007] HCA 1.