Regulation Impact Statement Updates

Official website for publishing regulatory impact analysis information for regulatory decisions announced by the Australian Government, COAG and COAG Councils.

Phoenixing – Restriction of Creditor Voting Rights

Aust Gov
7th December 2018

Regulation Impact Statement - Department of the Treasury

On 05 December 2018, the Government made the Insolvency Practice Rules (Corporations) amendment (Restricting Related Creditor Voting Rights) Rules 2018 to amend the Insolvency Practice Rules 2016 (Rules) to combat illegal phoenixing by limiting the ability of phoenix operators to ‘stack’ votes on certain resolutions at creditors’ meetings.

Illegal phoenixing involves stripping and transferring assets from one company to another company to deliberately avoid paying liabilities, such as tax or superannuation. One strategy used by illegal phoenix operators is to influence the appointment of an insolvency practitioner who may facilitate or ignore illegal phoenix activity or influence outcomes of other resolutions to hinder independent external administrators acting in accordance with their duties. To exert such influence, a phoenix operator may collude with related creditors to ‘stack’ votes on resolutions at creditor’s meetings in external administrations to ensure their preferred insolvency practitioner is appointed or kept in place or impede legitimate actions of external administrators.

To combat this vote stacking, amendments to the Rules will put in place measures to restrict related creditor voting rights. Voting on all resolutions at creditor’s meetings in an external administration will only be allowed up to the value of the amount paid for the debt. This amendment will prevent debts of substantial value being assigned for a small or token consideration to a creditor who has some close relationship to the debtor. In addition, an external administrator will be required to ask all creditors who have been assigned a debt for written evidence as to the assignment and the consideration paid for the assignment for voting purposes.

The Department of the Treasury prepared and certified a Regulation Impact Statement (RIS), which the Office of Best Practice Regulation (OBPR) assessed as compliant with the Australian Government RIS requirements and consistent with best practice.

The Department of the Treasury estimates the average annual regulatory cost to restrict related creditor voting rights at $56,181. The OBPR agreed that, as the costs were less than $2 million per annum, regulatory costs could be self-assessed by the Department of the Treasury.

 

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