ASIC keeps eagle eye on professional advisers

The Australian Securities and Investment Commission (ASIC) has demonstrated a continued commitment to investigating and prosecuting professional advisers who aid in breaches of director duties, or who are involved in phoenix activity. Most recently, this has been shown in court action brought by ASIC against the proprietor of a small business advisory firm.

What is phoenix activity?

Phoenix activity is an illegal attempt to create a new company from the metaphorical ashes of a ‘dead’ company, hence use of the term “phoenix”. What this involves, in practice, is the transfer of assets from one company to another in circumstances where:

  • The first company is or should be aware that it is almost technically insolvent (that is, unable to pay its debts as and when they fall due and payable).
  • The directors and shareholders of both companies are the same or otherwise connected.
  • The transfer will prevent legitimate creditors from accessing the assets of the first company to recover the debts owed to them.   

Background to the ASIC proceedings

The proprietor of the small business advisory firm was investigated after coming to ASIC's attention. The proprietor, whose Gold Coast-based business provided advice to directors of companies struggling financially as to how to "turn things around", was discovered to have cold-called the director of a company which had already been served with a wind-up notice from the Australian Taxation Office (ATO) and offered his services.

Once engaged, the proprietor assisted the company’s director in concealing the true ownership of company assets from liquidators appointed by the Court on the application of the ATO, preventing genuine creditors from recovering outstanding debts owed to them. The director also continued to use company assets for his own purposes, clearly breaching his director duties.

According to a report in the Gold Coast Bulletin, the proprietor of the small business advisory firm offered to create and help implement a plan whereby his client appeared to have transferred assets owned by the company to his wife some years previously. He then intended to open a new company with those funds. The director dated the transfer document (which purportedly referred to a fictitious sale in 2009) on October 4, 2013 – weeks after a winding-up application had already been filed in the Federal Court against his company.  

ASIC Commissioner Greg Tanzer noted in a media statement that business advisers are expected to "give advice that is lawful and in the best interests of their clients.”

Mr Tanzer reinforced that ASIC intends to continue to pursue advisors and other commercial consultants who knowingly advise their clients to conduct illegal activities, or otherwise breach their duties as directors and officers of companies.

The decision and penalties

On April 26, the proprietor of the small business advisory firm pleaded guilty at Southport Magistrates Court to various offences against the Corporations Act 2001 (Cth) and the Commonwealth Criminal Code, including dishonestly aiding, abetting, counselling or procuring another director to breach their duties.

As a result of his guilty plea, the proprietor was convicted and fined $6,600. The proprietor has also been disqualified from managing a corporation for five years.

What does this case mean for advisers?

There are several clear messages emerging from ASIC's action.

  1. Like Big Brother, ASIC is watching and is not only concerned with the actions of directors of companies facing or already insolvent, but also with the actions of those assisting or working with them.
  2. ASIC takes breaches seriously and will not fail to prosecute if it considers there has been misconduct or illegal activity.
  3. Perhaps most importantly, except in very specific circumstances, it is irrelevant if the adviser intentionally, knowingly, or completely inadvertently provides advice to a client which exceeds the law or rules governing directors. It is therefore essential to ensure that any advice provided is legally and ethically correct.

Dealing with companies facing insolvency can be very complicated, especially given the risk of prosecution or penalties. Advisers may wish to seek guidance from a qualified insolvency practitioner such as RSM Australia Partners.


Andrew Bowcher
Partner - Wagga Wagga
Jonathon Colbran
Partner - Canberra & Melbourne
Peter Marsden
Senior Consultant - Sydney