On 16 August 2018, ASIC announced that it had disqualified Jason Andrew Hammond of Cameron Park, NSW, from managing companies, for the maximum period of five years, as a result of his involvement in three failed companies – in essence for being involved in ‘illegal phoenix activity‘.

The ‘three failed companies‘ were:

  • LLM Rivits Pty Ltd (ACN 104 453 250)
  • Dongrove Pty Ltd (ACN 064 964 450)
  • ACN 125 277 250 Pty Ltd (ACN 125 277 250) – formerly known as Newcastle Bridal House Pty Ltd.

ASIC relied on reports lodged by liquidators of the failed companies. They produced supplementary reports with the assistance of funds from the ‘Assetless Administration Fund’.

ASIC found that Mr Hammond:

  • improperly used his corporate position by causing assets to be transferred for little or no consideration to the detriment of unsecured creditors;
  • failed to prevent some of the companies from trading while possibly insolvent;
  • failed to pay tax and ensure that proper financial records were kept;
  • failed to exercise his duties as a director with due care and diligence;
  • failed to comprehensively monitor company operations and financial position;
  • continues to behave without regard for the law and his professional responsibilities as a director and an accountant; and
  • engaged in phoenix activity by transferring the business of an indebted company to a new company leaving the initial company with no assets to pay creditors while continuing what was essentially the same business using the new company.

The total amount of debts owed by the three companies to creditors was almost $1.4 million.

Mr Hammond’s disqualification took effect from 11 August 2018 and extends to 10 August 2023 (5 years).

ASIC can disqualify a person from managing corporations under s206F of the Corporations Act 2001 (Cwth), for up to five years if, within a seven-year period, the person was an officer of two or more companies, and those companies were wound up, and a liquidator provides a report to ASIC about the company’s inability to pay its debts.

ASIC also maintains a ‘Banned and Disqualified Persons’ register that provides information about people who have been disqualified from:

  • involvement in the management of a corporation;
  • auditing self-managed superannuation funds (SMSFs); or
  • practising in the financial services of credit industry.

The Federal Government announced a package of measures to strength the power of ASIC, the ATO and others, to deal with ‘illegal phoenix activity’ and it released draft legislation, to effect these measures – see Related Tax Technical Article.

FJM 1.9.18

[ASIC website: Media Release 18-240MR; LTN 158, 17/8/18; Tax Month – August 2018]

 

Comprehension questions (answers available)

  1. Did ASIC ban a director of 3 companies, involved in illegal phoenix activity, from managing companies for the maximum of 5 years, under s206F of the Corps Act?
  2. Did ASIC find (amongst other things) that the director had caused three companies to dispose of assets for little or no consideration, leaving the companies insolvent, and unable to pay its debts, including tax liabilities?
  3. Did ASIC also find that other companies continued what was essentially the same business as failed companies had conducted?
  4. Did the failed companies have enough assets to fund supplementary reports, prepared by their liquidators, for ASIC’s investigation?
  5. Was the total of unpaid creditors’ debts $14m?
  6. Can you find out which people are banned from managing corporations?

[Answers:1.yes;2.yes;3.yes;4.no(theyWerePaidFromThe’Assetless Administration Fund’);

5.no($1.4mButStillCulpable);6.yes(seeThe’BannedAndDisqualifiedPersons’Link)]

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