ALERT: Anti-phoenixing Laws post-COVID


On 18 February 2020, the Treasury Laws Amendments (Combating Illegal Phoenixing) Act 2020 (TLA(CIP)) was enacted. In broad terms, the TLA (CIP):

  • introduced new criminal offences and civil penalties for contraventions by directors, pre-insolvency advisors and other facilitators of illegal phoenix activity;
  • extended the recovery provisions available to ASIC and liquidators to assist in the recovery of assets lost through illegal phoenix activity; and
  • prohibited directors from improperly backdating resignations or ceasing to be a director in circumstances where this would leave the company with no directors or to avoid personal liability or prosecution.

Section 588FDB(1) CA defines a creditor defeating disposition:

  • if the consideration payable is less than… market value of the property or best price reasonably obtainable, having regard to the circumstances existing at the time, and
  • the disposition had the effect of preventing property from becoming available for the benefit of creditors in the winding up or hindering, or significantly delaying the process of making the property available for the benefit of creditors.

Re Intellicomms; Franklin v Technologie Flutenti Pty Ltd (In Liq) [2022] VSC 228

Recently, an Australian court delivered the first published judgement in relation to the new anti-phoenixing regime.

Intellicomms was a software developer. At the relevant date it had over 700 customer contracts but over 85% of its revenue was derived from only 7 of them. It also owned 100% of the shares in Intellicomms New Zealand, which had a contract with the New Zealand government and had generated considerable revenue. Its major creditors included a debt owed to QPC – a software supplier who was also a minority shareholder.

On 8 September 2021, Intellicomms entered a sale agreement with Tecnologie Fluenti Pty Ltd (TF) pursuant to which its business assets, including its intellectual property, were sold. QPC, the minority shareholder, was not informed about the sale agreement. In fact, QPC’s managing director gave evidence that at the meeting of shareholders to appoint the liquidator, the director of Intellicomms indicated that no assets had recently been sold.

Aside from certain specified liabilities, including employee entitlements for transferring employees, the liabilities of Intellicomms were not transferred. After adjustments, the amount payable under the sale agreement was just over $20,000. Further, the liquidator had evidence that the cost to reach completion under the sales agreement exceeded the purchase price received – particularly the cost of novating over 700 contracts, the cost to run the business until completion and the cost of discharging certain superannuation obligations.

On the same day, a meeting of Intellicomms shareholders was convened at short notice by its sole director. During this meeting a liquidator was appointed to the company. Intellicomms was left with debts in excess of $3.2 million.

TF had been incorporated two weeks prior, on 25 August 2021. The sole director and shareholder of TF was the sister of the sole director of Intellicomms and was also an Intellicomms employee.

There were numerous valuations obtained by the director prior to the sale agreement. In February 2021, the director had provided QPC with a valuation of a sum of around $11.2 million as a basis for further investment by QPC in the business.

The director of Intellicomms then obtained the following further valuations:

  • In July 2021, a valuation of between $117,000 and $680,000.
  • In August 2021, the goodwill of the business was valued at $101,000.
  • In September 2021, a revised valuation of the goodwill by the same valuer came in at $57,000.

These valuations were all prepared using forecasts of future cash flow prepared by the director. The August and September valuations expressly valued the goodwill only. The value of the IP assets and Intellicomms NZ were expressly excluded.

The liquidators of Intellicomms applied to the Court for relief in relation to the Sale Agreement claiming it was, relevantly, a creditor-defeating disposition and a voidable transaction.

In addition to the above, FT led further valuation evidence at trial, valuing the business at about $2,000 more than the sale price. The liquidator’s valuation evidence was more of a ‘high-level’ critique of FT’s and the director’s valuations, including:

  • the valuations relied on unreliable cash flow forecasts prepared by the director;
  • the valuations had excluded, or only included a small portion of, the NZ revenue;
  • revenue growth rates were below industry expectations;
  • the valuations had included transferring employee entitlements despite evidence that many employees would not transfer to FT; and
  • working capital requirements were excessive and above industry standards.

There was also evidence of market interest for the business that the director had not explored in selling the business to FT. The most contentious issue before the Court though was whether the sum of $20,727.17 payable to Intellicomms under the Sale Agreement was less than the market value of the property or less than the best price that was reasonably obtainable. This was made difficult to determine because the Court was presented with multiple valuation reports of Intellicomms, each with wildly different accounts of the value of the business.

In delivering his reasons, his Honour Gardiner AsJ commented that the sales agreement had all the features of a phoenix transaction. Indeed, it was a brazen and audacious example. The effect of the transaction was to strip the company of what assets it had, leaving in excess of $3.2 million in debt. No explanation had been given as to the urgency of the sale, why third party interest had not been explored, nor why it could not have been better handled by the liquidator, or why no consideration had been given to the appointment of a VA.

Counsel for FT had conceded that there were “unattractive atmospherics” to the transaction, but nonetheless submitted that FT’s valuation evidence was the only admissible evidence as to value that was before the court, and that the liquidator had therefore failed in his onus of establishing a monetary value for the business. FT also submitted that it was impractical and risky for the business to be re-transferred to Intellicomms.

His Honour rejected the submission that the practical difficulties associated with re-transferring the assets was a reason against making a transfer order, saying that they were mostly the consequences of the defendant’s own actions. His Honour found that the criticisms of the valuation evidence were justified but did not need to be quantified as it was sufficient for the liquidator to establish that the transaction was for less than market value or the best price reasonably obtainable.

Key takeaways

  • Liquidators do not have to prove the monetary value of assets transferred if seeking a ‘transfer order’; It is sufficient that they are shown to be below market value or best price reasonably obtainable.
  • Practical difficulties behind effecting ‘transfer orders’ are not a sufficient reason to refuse order.
  • Caution should be exercised where expert evidence relies on input from management.
  • Directors need to show they considered alternatives to the transfer, including interest and appointing a VA or liquidator.
  • Credibility of repeated valuations undermined.
  • There are still no cases on the extension of the anti-phoenixing regime to advisors.


If you have any questions about this article, please get in touch with an author or any member of our Litigation & Dispute Resolution team.


This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.