ASIC wary of illegal phoenix risk as insolvency wave looms on horizon

The new commissioner of ASIC’s team responsible for investigating illegal phoenix activity lays out the regulator’s plans for 2021.

ASIC commissioner Diana Steicke said the regulator was targeting 40 investigations in the first half of 2021 after thousands of businesses that avoided insolvency face the music.

An anticipated wave of business ­insolvencies and administration has the corporate regulator on guard, but any attempt by businesses to phoenix their operations will be met by stiff resistance from a team of investigators.

The new interim head of the Australian Securities and Investments Commission anti-phoenix investigations unit said the regulator was mindful of the potential shake-out of insolvency protections measures introduced by the Morrison government in the early days of the pandemic.

ASIC executive director Diana Steicke said the regulator was targeting 40 investigations in the first half of 2021 after thousands of businesses that avoided insolvency face the music.

“We don’t have any evidence to suggest that the end of safe harbour is going to impact illegal phoenix, we’ve actually had a decrease in our reports of misconduct, about 8 per cent to March to November,” she said.

“But we’re going to be watching pretty closely around what liquidators are reporting to us and reports of misconduct that are coming through around illegal phoenix activity.”

Despite the collapse in insolvencies during 2020, ASIC has secured five convictions and disqualified 11 directors for illegal phoenix.

One registered liquidator, Mitchell Ball, was also found by a disciplinary committee to have unintentionally facilitated illegal phoenix activity.

Ms Steicke said the regulator was expecting the coming wave of insolvencies to hit the economy in three waves.

“The companies that were insolvent when COVID-19 hit, they would have entered insolvency if not for the relief measures, they’ll fall over quickly,” she said.

“The second wave are those that continued trading in reliance on the relief measures that became available, but they’re not viable when those measures are withdrawn.

“And finally, this is possibly a few years down the track, the companies that weren’t insolvent but incurred additional debts during COVID-19, they may fail a few years down the track.”

Ms Steicke said the regulator was conscious that some of those businesses might attempt to phoenix their operations, particularly those in high-risk fields.

She said a new manager had been hired to oversee the regulator’s anti-phoenixing investigations.

“The changes will come from the fact that there are going to be director IDs coming in, that’s slated to be able to assist regulators to identify illegal phoenix activity,” she said.

“We’re busy getting everything ready so that can be up and running from February 2021.”

ASIC’s small business engagement and compliance team, which Ms Steicke oversees, has 36 full time staff.

That’s coupled with ASIC’s 28-strong Insolvency Practitioner team.

The commissioner said ASIC was planning 40 surveillances this financial year of high-risk company directors and pre-insolvency advisers at risk of illegal phoenixing.

This comes off the back of 45 surveillances in 2019-20, some of which have progressed into the courts.

Ms Steicke said the regulator kept an active watch on “certain problematic pre-insolvency advisers” and directors at risk of illegal phoenixing.

“We do a lot of work around identifying, using data to identify a shortlist of directors who we think are most at risk,” she said.

“We work to prioritise our top candidates, we look at how many we can realistically do.”