Are you dealing or contracting with an Illegal Phoenix Company?

Are you dealing or contracting with an Illegal Phoenix Company?

The term ‘Phoenix Company’ is used when a company has deliberately shut down due to indebtedness, and the directors of that company start up a new company to re-commence trading in attempt to avoid the former company’s debt. It’s important to understand that there is legal and illegal phoenix activity.

Illegal phoenixing means that the directors involved will transfer the assets of the former company to a new company for little or no consideration and commence trading under the same trading terms it may have with its suppliers and/or customers.  However, for suppliers and/or creditors, this can be a problem where there is a default and the former contracts with the former entity will not be enforceable against the new company, even though the new company is the one that holds the assets (and the money).

Identifying an Illegal Phoenix Company

While it may be difficult for creditors to identify whether a company may be an illegal phoenix company, there are a few key factors that can assist in identifying whether a business is engaging in illegal Phoenix behaviour or is otherwise a legitimate entity. Key factors of identification include:

  1. If the company owes money and appears to be indebted; and
  2. If the trading name of the company changes, but they have the same staff, managers and directors;  and
  3. If the company closes down for a period of time and re-opens within 12 months and commences trading, either in the same location or a different location with a new trading name.

As it can be difficult to ascertain whether you are dealing with an illegal phoenix company, we suggest the following due diligence checks are undertaken regularly in your business practices to avoid the predicament of being a creditor unable to enforce:

  1. Review your consumer contracts regularly. This includes identifying contracts that may be a few years old and running a free Australian Securities and Investments Commission (“ASIC”) search on those entities to ensure that the entity is still a registered entity. If they are no longer registered, and you have been still supplying to the entity, then you will need to ask the directors of the company to execute a new supply contract. This will ensure that you are protected against your supply to the new entity;


  1. Ensure your contracts have personal guarantees signed by directors. This will provide security to you if the company does close, becomes de-registered or goes into liquidation. It will allow you to pursue the directors personally for any debt owed by the former company or any newly established company which that director has created;


  1. Ensure that when your customer completes your contract and provides you with their company details that you undertake an ASIC search to ensure it is a registered entity. It is imperative that you check the ACN of your customer’s company but also check the exact spelling of the entity name. Sometimes, illegal Phoenix companies will set up the new company with one letter or number different to confuse suppliers and creditors, or in an attempt to go unnoticed that their trading entity is different to the entity that is inserted on supply contracts;


  1. Know that a trading name is not a separate legal entity that can legally be pursued. Two entities for example, can trade under the one trading name and that is why it is essential to ask for the ACN and correct spelling of the company name. This makes it easy for Phoenix directors to simply change trading names or use the same trading name but create a different trading company.

What are the consequences for directors of an Illegal Phoenix Company?

Under the Corporations Act (Cth) 2001 (“the Act”), directors have multiple duties which they must comply with, otherwise they may not only be in breach of the Act, but also place themselves in a position of personally or criminal liability for an act committed in the name of the company. Illegal Phoenix activity is one of those acts for which a director can incur serious penalties. ASIC outlines the following penalties which a director can incur if they are found to engage in illegal Phoenix activity:

  • be found guilty of a criminal offence with a penalty of up to a maximum of $200,000, or imprisonment for up to five years, or both;
  • have contravened a civil penalty provision (and the court may order you to pay to the Commonwealth up to $200,000);
  • be personally liable to compensate the company or others for any loss or damage they suffer; and/or
  • disqualifying a director from managing a company.

What to do if you suspect you are dealing with an Illegal Phoenix company?

ASIC and the Australian Taxation Office are the Australian authorities that most closely monitor illegal phoenix activity and deal with complaints, allegations and reports of illegal phoenix activity, though there are various other government entities which also assist.  If you are a creditor of a company and suspect a company you are dealing with is involved in illegal phoenix activity, the first step you can do is report the company to ASIC. JHK Legal can assist with compiling a complaint and report on your behalf.

Separately, if you are aware that a company you have dealt with has gone into liquidation and are aware that the same directors have established a new trading entity with the same assets but without good value having been paid to the former company for those assets, then you can simply report the conduct to the former company’s liquidator. The liquidator will be obligated to conduct investigations and compile a statutory report to ASIC. ASIC will then take steps to investigate the complaint and take the relevant enforcement action, which may result in the consequences outlined above.

JHK Legal has extensive knowledge on insolvency and debt recovery processes. We not only assist those who may be creditors or victims of illegal phoenix activity, but if you, as a director, are aware of your company having financial difficulties and are unsure of your director’s duties and responsibilities in relation to your company’s debts, we can assist with providing corporate advice as to options for your business’s structure, including financial options that will avoid any possibilities of breaching your director’s duties.

Hayley Tibbie – Lawyer



Facebook Passwords? The Job Interviewing Trend; are Employers Entitled to Ask for Them???

Emerging is a somewhat unnerving trend of employers believing they are entitled to and doing so – requesting current or potential employees to provide their social media login details during interviews, or as a condition of their continuing employment. That is for example, their Facebook login and passwords. This issue has prompted United States senators to call for enquiry into the legality of the practice. [1] While there are presently no legal cases on the issue in Australia, the concern exists that the practice may be taken up by Australian Employers. [2]

But what are the legal implications of such requests, particularly in the context of a job interview?  Directly, there is no current law against asking an employee or potential employee to share their passwords.  However, there may still be legal ramifications for employers who choose to engage in such activity.

It’s not difficult to see why the practice would exist, as the information which could be obtained from your personal social networking accounts would be invaluable to employers looking to see past the veneer of perfection an employee tries to put forward on their resume and during interviews.  This is particularly true due to the strange effect of the internet by which online people feel freer to express controversial viewpoints, even without a veil of anonymity. [3]

It has been routine practice for some time for employers to conduct discrete online searches of potential employees, or to have employees ‘friend’ the organisation’s Facebook page or HR representative.  Of course, candidates have become savvier, and have privatised their social networks.  However, select employers unwilling to do without conducting these searches, and unwilling to do without such in depth knowledge, have begun increasing the intrusiveness of their checks.  There are reports of interview forms containing passages as blatant as, “Do you have any web page accounts such as Facebook, Myspace, etc. If so list your user name and password,”[4] as well as requesting the employees log onto and navigate through their accounts while the interviewers watch over their shoulders.

While the relative novelty of social networking may allow the privacy violations inherent such requests to be lost on some, by analogy the practice is the equivalent of asking for access to a person’s personal email account, their bank account details to see where and on what they spend their money, or even further asking for the key to their house for an opportunity to inspect its’ contents, and cleanliness.  The reason that the practice has been allowed to permeate into the interview room is no doubt due to the current economic conditions; few would be willing to refuse an employer’s request in fear that doing so will cause them not to be offered the role.

What About the Facebook Terms and Conditions

At the core level, the use of Facebook represents as a contract between Facebook and the user.  Under Facebook’s terms of use there is a condition that the user not share or divulge their password. [5]  Any person providing their Facebook password to an employer, or to anyone else for that matter, is therefore in breach of the Facebook terms and conditions and Facebook would have the right to terminate the services to that person (not that it is suspected or expected Facebook would).

To an employee placed in such a situation where they are asked to divulge their password (and where they are understandably uncomfortable doing so) the best approach to evading the request without looking as though they have something to hide is to point out that doing so would be in violation of their contractual agreement with Facebook and questioning whether the organisation would be so eager to hire someone who would so flippantly violate terms of their employment contracts.

At the same time, it is arguable that the employer requesting the password is liable under tort for having induced the person to breach the terms of their contract.  This action would only be available to the Facebook Corporation and not to the individuals whose privacy has been breached.  The tort requires the following:

“Direct persuasion or procurement or inducement applied by the third party to the contract breaker, with knowledge of the contract and the intention of bringing about its breach . . .” [6]

Clearly it would be difficult to establish that the employer knew of the breach they were inducing unless it was brought to their attention at the time of the request, and further it would be hard to imagine how a to remedy such a breach, or even what damages Facebook would suffer as a result of the breach.  Facebook has publicised that they are considering legal action against employers requesting potential employee’s passwords. [7] However they quickly clarified that they have no current plans to sue employers directly, which in itself it’s a contradictory statement. [8]

Gives Rise to Discrimination

A person’s Facebook page may contain a large amount of information about themselves which they would not normally put forward to a potential employer during a job interview.  This is of course what employers are allured towards discovering, however amongst this information may be certain topics which the employer should not to use in determining your suitability for a job; for example, the candidate’s sexuality, religion, age, relationship status or race.[9]  Accordingly, an employer who accesses a person’s Facebook page containing such information may open themselves up to potential unfair discrimination claims, if they turn down that person based on the results of their Facebook screening.

Ultimately, these two potential recourses are extremely limited and appear to do nothing more than provide minor disincentives or cautions to employers who might wish to engage in this practice.  Until further legislation is enacted to specifically address this issue, the safest course for job seekers may simply be to keep their social networking activities discrete.

Shan Auliff   – Senior Associate 


[1] Anonymous, “Senators Question Employer Requests for Facebook Passwords”, Associated Press, 25 March 2012   at http://www.nytimes.com/2012/03/26/technology/senators-want-employers-facebook-password-requests-reviewed.html

[2] Meddows D, “Employers ‘can request Facebook passwords’” Nine MSN, 24 March 2012, at http://news.ninemsn.com.au/technology/8440585/employers-can-legally-ask-jobseekers-for-facebook-passwords

[3] Moses A, “Defence contractor suspended over neo-Nazi links,” Sydney Morning Herald, 6 April 2009 at www.smh.com.au/technology/technology-news/defence-contractor-suspended-over-neonazi-link-20090615-ca9t.html.

[4] Goessl L, “Op-Ed: Will using passwords and privacy settings matter in the future?”, 8 March 2012 at http://www.digitaljournal.com/article/320817

[5] “Statement of Rights and Responsibilities” Facebook, 23 March 2012 at https://www.facebook.com/legal/terms

[6] DC Thomson v Deakin [1952] Ch 646, cited with approval in Qantas Airways Ltd v Transport Workers’ Union of Australia [2011] FCA 470 at [439]

[7] “Protecting Your Passwords and Your Privacy.” Facebook, 23 March 2012 at http://www.facebook.com/notes/facebook-and-privacy/protecting-your-passwords-and-your-privacy/326598317390057

[8] Protalinski E “Facebook: No plans to sue employers asking for your password”, ZDNet, 23 March 2012 http://www.zdnet.com/blog/facebook/facebook-no-plans-to-sue-employers-asking-for-your-password/10802

[9] Anti-Discrimination Act 1991 (Qld) Section 7 and 14

NSW gift card reforms: the gift that keeps on giving… for 3 years

From 31 March 2018, gift cards and vouchers purchased by consumers in NSW must have a minimum expiry date of 3 years from the date of purchase.

The NSW State Government has introduced new reforms to the Fair Trading Act 1987 (NSW) (the act) by amending the mandatory minimum expiry period from 12 months to 3 years on most gift cards and gift vouchers sold to consumers in NSW.

Section 58N of the Act now provides:

58N Prohibition on gift card expiry dates of less than 3 years

(1)       A person must not sell to a consumer in New South Wales a gift card with an expiry date that is earlier than 3 years after the date of sale of the gift card.

Maximum penalty: 50 penalty units.

(2)       A person who sells a gift card to a consumer in New South Wales, or who has agreed with the seller to redeem that gift card, must not impose any administrative charge or fee that reduces the redeemable value of the gift card after the sale of the gift card.

Maximum penalty: 50 penalty units.

(3)       A term or condition of a gift card sold to a consumer in New South Wales is void to the extent that it would make the sale of the gift card, or the imposition of a charge or fee, an offence under this section.

(4)       If the expiry date of a gift card is void because of subsection (3), the expiry date is taken to be 3 years after the date of sale of the gift card.

A “consumer” for the purposes of the Act has the same meaning as in section 3 of the Australian
Consumer Law
(NSW) which provides there is a presumption a person is a “consumer” if they:

  1. acquire goods or services the price of which is $40,000.00 or less; or
  2. acquire goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption; or
  3. acquire a vehicle or trailer (at any price) for use principally in the transport of goods on public road, and
  4. in relation to the acquisition of goods, do not acquire, or hold themselves out as acquiring, the goods for the purpose of resupply, using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture, or repairing or treating other goods as fixtures on land.

The reforms extend to consumers outside of NSW provided the gift card or voucher was either:

  1. purchased in a store located in NSW; or
  2. purchased online or by phone from a business with a NSW contact or delivery address.

Gift cards and vouchers purchased prior to 31 March 2018 will have the same expiry date and terms and conditions that applied to gift cards at the time of purchase.

Ban on post-purchase administration fees

Under the new reforms, businesses are now being banned from applying post-purchase administration fees to gift cards and vouchers which reduce the redeemable value of the gift card.

Transition period

Businesses have been provided with a transition period between 31 March 2018 to 30 September 2018 during which they may continue to sell their old gift cards however, the gift cards sold during this period are still captured by the new reforms. If a business sells a non-compliant gift card during the transition period it must notify the consumer purchasing the gift card of the new 3 year mandatory expiry period by manually changing the expiry date on the gift card, updating its gift card terms and conditions on its website, placing signage in-store, providing consumers with an information leaflet or noting it on the receipt.

The transition period does not apply to digital or e-gift cards which must show the new 3 year minimum expiry period effective from 31 March 2018.


The 3-year minimum expiry period does not extend to the following gift cards or vouchers:

  1. gift cards issued for returned goods;
  2. gift cards issued as part of customer loyalty or employee rewards programs;
  3. gift cards given for free to consumers or as part of a marketing promotion or a bonus to another purchase, including prizes in a trade promotion;
  4. gift cards sold for below market value of the goods/services or gift cards donated for a fundraising appeal;
  5. prepaid phone and internet cards; and
  6. debit/credit/ATM cards or reloadable cards that use EFTPOS, Visa, Mastercard, etc.

For further information and advice please contact JHK Legal on 02) 8239 9600. The above article is not intended to be a substitute for legal advice.

Kathleen Faulkner – Senior Associate