Phoenix Transactions
There is no statutory or legal definition of a Phoenix Transaction however, phoenix activity can be regarded as per the ASIC definition as involving;
"The transfer of assets (such as the business) of a company (the 'previous company') to a subsequent company in circumstances where the previous company:
- was unable to pay its debts; and
- may have been conducted in a manner so as to deprive unsecured creditors equal access to its assets; and
There is a connection between the management or shareholding of the previous company and subsequent company."
Put simply, a phoenix trasnaction involves the transmission of assets of the first company (that is in trouble), to another company involving the same management or shareholders, without the payment or any consideration whatsoever being paid to the first company and also involves leaving behind of all the debts of the first company.
A director may attempt to hold onto assets by way of a phoenix transaction however the ASIC considers this activity a serious breach of the Act as it is fraudulent and designed to place the assets of the first company beyond the reach of its creditors.
Accordingly the sanctions for this type of behaviour include both financial penalties and custodial sentences.
