The Australian Securities and Investments Commission (ASIC) has reported on two successful convictions against directors for breaching their duties, in that they engaged in illegal phoenix activities.
The reports are in two media releases, both published on 19 December 2017. Copies of the media releases appear below. But unfortunately, the media releases do not report on what, if anything, happened in relation to the assets of the stripped companies. If the only consequences of the phoenix activities were fines and, in one case, disqualification, there has been little in the way of deterrence.
As can be seen, one director was convicted and fined $5,000, and automatically disqualified from managing corporations for five years. His company (Brimarco) had all its funds – $34,800 – taken and transfered to a related company, leaving behind debts of $2 million. The release does not say whether the $34,800, or anything at all, was recovered.
The other director was discharged without conviction upon entering into recognisance in the sum of $2,000 on condition that she would be of good behaviour for two years. She sold the assets of her company (Greenlay Enterprises) to a related entity for $20,000, which appears to have been less than their market value. To make matters worse, the related entity did not actually pay the $20,000. The release does not say whether the assets, or an amount equal to their worth, or anything at all, was recovered.
Former director sentenced for director duties breaches
ASIC Media Release 17-448MR, 19 December 2017
“Mr James Meaden, of Invermay, Victoria has been convicted and sentenced after pleading guilty to dishonestly using his position as a director of a company.
Mr Meaden, the former and sole director of Brimarco Pty Ltd (the Company) operated a business specialising in the manufacturing of trailers in Ballarat, Victoria.
An ASIC investigation found that Mr Meaden engaged in illegal phoenix activity by causing $34,800 to be transferred from the Company to a related company called Tough As Pty Ltd, of which he was also the sole director. The transfer occurred one day prior to a court hearing to wind up the Company.
After the transfer, the Company had no funds to pay employees’ wages and other entitlements. The Company also had numerous creditors who were collectively owed more than $2 million.
The Company was placed in liquidation on 17 April 2015.
Mr Meaden appeared in the Ballarat Magistrates Court on 12 December 2017. He was convicted and fined $5,000. As a result of his conviction on a dishonesty offence, Mr Meaden is automatically disqualified from managing corporations for five years from 12 December 2017.
The matter was prosecuted by the Commonwealth Director of Public Prosecutions
Background
Mr Meaden was convicted of s.184 of the Corporations Act, which is a dishonesty offence. ASIC commenced an investigation after receiving a report from the liquidator of the Company, Mr Mark Roufiel, which was prepared with funding from the Assetless Administration Fund.”
Queensland franchisee pleads guilty to breaching director duties
ASIC Media Release 17-449MR, 19 December 2017
“Ms Sheila Anne McAulay, of The Gap, Queensland has pleaded guilty to dishonestly using her position as a director of a company.
An ASIC investigation found that Ms McAulay, a former director of Greenlay Enterprises Pty Ltd (Greenlay), engaged in illegal phoenix activity by executing a Bill of Sale to sell assets of Greenlay to a related company called Pasta on the Run Pty Ltd (Pasta), of which she was also the director, for $20,000.
However, no independent valuation of the assets was conducted and no consideration was paid to Greenlay by Pasta. This conduct resulted in Ms McAulay stripping the assets of Greenlay, leaving no assets for the liquidator to realise to pay creditors of Greenlay.
The Company was placed in liquidation on 1 July 2013.
Ms McAulay appeared in the Brisbane Magistrates Court on 12 December 2017 and pleaded guilty to one count of breaching her director’s duties. Ms McAulay was discharged without conviction upon entering into recognisance in the sum of $2,000 on condition that she would be of good behaviour for two years.
The matter was prosecuted by the Commonwealth Director of Public Prosecutions.”
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