Insolvency law reform inquiries into phoenix company misconduct are happening or are proposed. Where are we to begin?
Soon after the Productivity Commission (PC) proposed its inquiry into illegal phoenix activity [1], being one inquiry among others under the National Competition Policy: modelling proposed reforms, and soon after the 5 year anniversary of the changes made by the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (the 2020 phoenixing law), triggering the need for a statutory review, under s 4(2) [2], the Department of Employment and Workplace Relations (DEWR) has, in February 2025, announced a review of the Fair Entitlements Guarantee (FEG), including a review of the changes made by the 2020 phoenixing law [3].
Then there is also the PJC’s 2023 recommendations for a comprehensive review of insolvency law [4].
To borrow the PC’s question – “Where to begin”?
As to the first two items, the PC inquiry into phoenix activity, and the 5 year statutory review of the 2020 phoenixing law, see Productivity inquiry into phoenix activity – Murrays Legal of 8 December 2024.
As to the third, we now have DEWR in 2025 examining the need for law reform to deal with what it says are abuses of the FEG scheme, including by way of further amendments to the amendments made by the 2020 phoenixing law.
As to the fourth issue, the 2023 PJC Report on Corporate Insolvency, any comprehensive review of insolvency law would need to re-examine the priority given to employees, and certainly the 19th century legal processes by which that priority, and FEG’s, is maintained.
DEWR’s concerns about government finances
The DEWR Discussion Paper – Addressing corporate misuse of the Fair Entitlements Guarantee, of 17 February 2025 – does not refer to the broader terms of the review required under section 4(2) of the 2020 phoenixing law.
Nor does the politicians’ ‘media release’ which says that the government
“will crackdown (sic) on corporate misuse of the Fair Entitlements Guarantee (FEG), with consultation now underway (sic) to ensure the scheme remains as effective as possible”.
In the discussion paper DEWR expresses a range of concerns about corporate misconduct including deliberate practices by directors to appoint a
“‘friendly’ liquidator who does not properly investigate fraudulent transactions in the liquidation process”,
subject to having funding to do so and to their commercial discretions. This will be of concern to ASIC given its focus in its Corporate Plan 2024-2025 on “poor behaviour” by liquidators, including in relation to their independence.
The processes put in place by DEWR to monitor the operation of this 2020 law over the last five years will no doubt be useful. As is evident, no contribution orders under s 588ZA of the Corporations Act have been made by a court, and DEWR says it is not aware of any applications for a contribution order having been made by a party with standing. Nor is DEWR aware of evidence indicating that the availability of contribution orders has led to any noticeable behavioural change in the use of corporate groups. But DEWR says that it has
“identified a range of barriers to the effectiveness of the contribution order regime that may account for its limited take-up”.
It makes a number of suggested law changes.
Alternatively, a view might be taken that merely enacting a law to “combat” certain conduct will usually not be enough, any more than s 588ZA has been, at least without director identity, beneficial ownership and other structural reforms in support. The nature of a corporation and its adverse impact on the sentiments of its owners is another aspect to combat.
As to the PC, it might usefully conduct an inquiry into the productivity of government law reform processes.
Submissions to DEWR are open until 31 March 2025 at the Department of Employment and Workplace Relations’ consultation hub.
