The New South Wales Supreme Court has found eight directors of unrelated companies to have acted in breach of the Corporations Act by engaging in what ASIC regards as illegal ‘phoenix’ activity and that their legal adviser, Mr Timothy Donald Somerville, also contravened the Corporations Act by being involved in the directors’ breaches.

Each of the directors had sought advice from Mr Somerville in circumstances where his company was insolvent or nearing insolvency. The transactions entered into by the directors as a result of that advice were found by the court to have the effect of taking assets out of their companies and out of the reach of creditors, and that by causing the companies to enter the transactions, the directors failed in their duty to act both in the interest of the company and its creditors.

This is the first time ASIC has successfully taken action against an adviser for involvement in facilitating illegal phoenix activity.

Further details are available from ASIC.