Corporate Insolvency Law in Australia
Insolvency in Australia is used to refer to companies. Corporate insolvency law in Australia was initiated in 1993 by Commonwealth Attorney-General Michael Lavarch. He announced the establishment of the working party to review the regulations of the corporate insolvency practitioners. The Australian insolvency laws regulate the position of companies that are financially distressed and cannot pay for their obligations or debts. This law is governed by the Corporations Act 2001. According to section 95A of the Act, a company is solvent if it can pay debts when they fall due or when they are payable (Winter, 2019). A company that cannot meet this requirement is thus deemed insolvent. The Act prescribes a manner in which to administer and regulate liquidation, administration, and distribution of assets in insolvent corporations.
The controversies surrounding the corporate insolvency laws include the practice of “phoenixing.” Phoenixing is a term used to describe the transfer of assets from an insolvent company to a different entity to combat the interests of creditors from the distressed company in those assets (Mallesons &. King, 2019). After a corporate has been stripped off the assets, the distressed company then stops trading and is liquidated with available but insufficient assets left for creditors. Phoenixing has attracted attention from the band of regulators in Australia. On February 2019, the Phoenixing Bill was brought to parliament proposing to offer the liquidators power to curtail phoenixing and prosecute culpable directors. Phoenixing has led to a lot of sufferings by the government creditors who suffer losses in unfunded liquidations understood to be “phoenixes.” This presents another controversy of illegal phoenixing (Mallesons &. King, 2019). The cost of illicit phoenixing in Australia is estimated at $2 billion annually. The issues surrounding phoenixing has attracted significant attention from Government creditor bodies such as the Australian Taxation Office (ATO), and Fair Entitlement Guarantee (FEG).
References
Mallesons W, &. King (2019, February 20th). Newsfeed. Retrieved from LEXOLOGY: www.lexology.com/library/detail.aspx?g=44e4da64-afbc-462e-a710-4f555e0eefbb
Winter, J. (2019). Pre-insolvency advisers: No-one’s problem. Everyone’s problem. Australian Restructuring Insolvency & Turnaround Association Journal, 31(1), 12.