Illegal phoenix activity: is a “phoenix prohibition” the solution?

Phoenix activity is not inherently illegal but illegal phoenix activity is generally understood to be those actions, undertaken in the phoenix context, that breach laws because they involve wrongdoing. Because illegal phoenix activity continues to cause significant harm to creditors of companies, employees and revenue authorities, it is not surprising that many continue to suggest a specific phoenix prohibition as the answer. To date, however, this has not been achieved. This article considers attempts to define or proscribe illegal phoenix activity before examining the existing laws – including directors' duties – that already prohibit this behaviour. Working on the belief that illegal phoenix activity continues because these "generalist" laws are under-enforced in the phoenix context, this article suggests a new approach. Rather than devising a new prohibition that describes the circumstances of illegal phoenix activity, the enforcement of the existing directors' duties should be bolstered by removing the financial benefits of phoenix activity and by substantially increasing the relevant penalties. The amendments suggested herein – if taken up by the government – send a valuable signal to wrongdoers that their behaviour will be severely punished, and to ASIC that this is an area in which enforcement can produce significant benefits.