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Fraudulent phoenix activity is of great concern to Australian policymakers. It occurs where there is the deliberate liquidation of a company to avoid paying debts but the business continues through another company, and in corporate groups through the liquidation of under-capitalised subsidiaries and transfer of business to other companies in the group.
This behaviour causes huge losses in taxation revenue and large financial losses for employees and unsecured creditors. To strengthen Australia's economic fabric, this project aims to determine the optimal method of dealing with fraudulent phoenix activity through a thorough examination of all of its aspects in Australia and by a comparative analysis of international responses.
Since the launch of the Phoenix Project, the Phoenix Research Team has been collaborating with key stakeholders and have been making submission to Government and appearing before enquiries. For example, in 2015 Professor Michelle Welsh gave evidence before the Senate Economics References Committee (SERC) inquiry into insolvency in the Australian construction industry.
Several of the Phoenix Research Team’s key recommendations made in submissions have been supported in whole or in part by the Productivity Commission and the SERC. These recommendations include the introduction of a Director Identity Number and the need for increased identity checks for directors at the time of incorporation.
The five categories of phoenix identified by the Phoenix Research Team in its first major report Defining and Profiling Phoenix Activity have been positively received. The ATO referred to the report in its submission to the SERC and it was the subject of questions by the committee to Professor Welsh. The report has also been relied upon by the Australian Restructuring Insolvency and Turnaround Association (ARITA). The categories assist the understanding of legal and illegal phoenix activity and of the need to differentiate the treatment of phoenix activity depending on the circumstances of its occurrence. The team’s second report, Quantifying Phoenix Activity: Incidence, Cost, Enforcement has highlighted the current difficulties in obtaining accurate or meaningful statistics about phoenix activity.
The team’s third and final report ‘Phoenix Activity: Recommendations on Detection, Disruption and Enforcement (February 2017)’ was released on 24 February 2017 and has been the subject of much publicity.
This project is funded by a three-year Australian Research Council Discovery Grant of $403,000.
This research examines the introduction of limited liability into the English and Australian companies legislation in the mid-nineteenth century and compares how this legal change was adopted in two different societies. This historical development illustrates that the interaction of legal change and socio-economic developments is complex, unpredictable and the result of a number of historical contingencies and so offers an alternative perspective to functionalist, and in particular, the predominant law and economics explanations of the rationale for limited liability. It is a conclusion of this research that recognising the complexity of legal change better enables us to question why the law developed as it did and whether it should be reformed. The concept of limited liability has given rise to particular problems such as corporate group tort liabilities and ‘phoenix’ companies that should be reconsidered in the light of its historical development.
Debt agreements are the fastest-growing form of personal insolvency in Australia. Consumer advocates have raised concerns over vulnerable debtors entering into debt agreements that are unsuited to their needs, exacerbating their financial stress. Our research examines questions concerning the adequacy of legal frameworks in protecting consumers in financial hardship. We evaluate the debt agreements framework, drawing on a large data set from the Australian Financial Security Authority, interviews with stakeholders and surveys of debtors. The empirical study is part of the Personal Insolvency Project funded by an Australian Research Council Linkage Grant received by Professor Ian Ramsay and Associate Professor Paul Ali (Melbourne Law School). The project examines the impact of personal insolvency laws on debtors and considers the extent to which the regulatory frameworks are achieving their objectives. Partners for the projects include community organisations such as Consumer Action Law Centre, Financial Counselling Australia and Good Shepherd Australia New Zealand. The team’s article on debt agreements was cited in the Report of the Senate’s Legal and Constitutional Affairs Legislation Committee on the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018.
In recent times, investigations such as the banking royal commission have highlighted the potential harm to vulnerable consumers flowing from some financial products. Our research continues to examine the effectiveness of regulatory frameworks for disadvantaged financial consumers. The Harmful Financial Products Project is funded by an Australian Research Council Linkage Grant (Melbourne Law School).
Previous publications relating to financial regulation and financial consumers:
Digital currency is a ‘disrupter’ of financial services and currency markets and as such presents new regulatory challenges. International regulatory responses to digital currency range from it being largely ignored in a few jurisdictions to outright banning in others with most jurisdictions charting a middle course of ‘wait and see’ while attempting to deal with pressing issues (such as taxation liability and potential money laundering and terrorism financing issues). The research seeks to explain digital currency, its benefits, its problems and its risks and the regulatory response so far. It analyses the extent to which the Australian Securities and Investments Commission (ASIC, the national securities regulator) may or may not have regulatory power and jurisdiction under existing Australian law and the role of other relevant regulators and institutions.
In June 2014 the New Zealand market operator used its enforcement power to discipline a major corporate player with a penalty (NZ$150,000) for its breach of the disclosure rules. The market disclosure rules have been in operation since 2002 but until then there had been no instances where compliance has been enforced so overtly and to such a magnitude. Australia operates a similar system of disclosure regulation to New Zealand, but its enforcement record stands in stark contrast, where around the same time, a major Australia company agreed to a penalty of AU$1.2 million for two contraventions of similar laws. This research reviews the New Zealand regulatory landscape in mandatory disclosure and compliance and reflects on the relevant market operators’ and regulators’ power and appetite for enforcement. These contrasting examples raise interesting questions in corporate law as to the effectiveness at enforcing market discipline in relation to disclosure, and whether quantum matters