New legal precedent for 'advisers'
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The Australian Securities and Investments Commission (ASIC) has issued a warning to advisers to be wary of becoming involved in breaches of the Corporations Act, following the landmark prosecution of a legal adviser and eight company directors over illegal ‘phoenix’ activity.
It represented the first time the regulator had successfully prosecuted an adviser in such circumstances and the regulator said the consequences needed to be understood by advisers of all kinds.
The regulator named the legal adviser as Timothy Donald Somerville, who it said provided advice to each of the eight company directors in circumstances where the companies were either insolvent or nearing insolvency.
ASIC said the transactions entered into by the directors as a result of that advice were found by the NSW Supreme 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.
The regulator said it was the first time it had successfully taken action against an adviser for involvement in facilitating illegal phoenix activity. It said the findings against Somerville marked the line across which legal and other professional advisers should not step.
ASIC said the court found that the transactions would not have taken place but for Somerville’s involvement and that by his advice and conduct, the adviser had facilitated his clients breaching their directors’ duties and, as a consequence, he was found to have aided and abetted their breaches.
Commenting on the court’s decision, ASIC commissioner Michael Dwyer said the case not only reinforced the role and responsibilities of directors in insolvency situations but brought home to advisers the need to ensure they did not get themselves in a position where their involvement amounted to advice to carry out an improper activity.
AUTHOR
Mike Taylor
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