ASIC announced its first prosecution for creditor-defeating dispositions in a case that also alleges criminal misuse of position by an employee and criminal inducement of a witness to withhold testimony.
This article outlines what the alleged contraventions are, the significance of the prosecution and the steps that directors, officers and employees should take to ensure compliance with statutory obligations.
Background
Between August 2023 and June 2025, Giuseppe DeFrancesco was employed at Jasa Dining Pty Ltd (in liquidation) (Jasa Dining), a restaurant in Camden, New South Wales operating under the name The Italian Food Project.
Misuse of position
ASIC alleges that between 17 August 2023 and 5 April 2024, Mr DeFrancesco ‘dishonestly used his position as an employee to redirect $935,000 in proceeds from the sale of Jasa Dining to himself, to the detriment of Jasa Dining’s creditors and contrary to s184(2) of the Corporations Act 2001 (Cth) (Corporations Act)], an offence which carries a 15-year maximum penalty.
Section 184(2) of the Corporations Act makes it a criminal offence for a director, other officer or employee of a corporation to use their position dishonestly with the intention of directly or indirectly gaining an advantage for themself, or someone else, or causing detriment to the corporation.
It also criminalises conduct by the same class of people that is dishonest and reckless as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.
Creditor-defeating disposition
ASIC also alleges that between 10 April 2024 and 22 April 2024, Mr DeFrancesco ‘procured, incited, induced or encouraged Jasa Dining to redirect a further $96,793 in sale proceeds contrary to s588GAC(1) of the Corporations Act, an offence which carries a maximum penalty of 10 years’ imprisonment’.
Section 588GAC(1) makes it a criminal offence to engage in conduct of procuring, inciting, inducing or encouraging the making by a company of a disposition of property that results in a creditor-defeating disposition in circumstances where:
a. the company is insolvent;
b. the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition; or
c. less than 12 months after the disposition, the company enters external administration as a direct or indirect result of the disposition.
Section 588FDB(1) of the Corporations Act defines creditor-defeating dispositions as those where:
a. the amount payable to the company for the disposition was less than the lower of the market value of the property and the best price reasonably obtainable for the property in the circumstances; and
b. the disposition either:
i. prevents the property from becoming available to creditors in the winding up of the company; or
ii. hinders or significantly delays the property becoming available to creditors in the winding up of the company.
Creditor-defeating dispositions may constitute what is colloquially known as phoenixing activity, which occurs where a person transfers company property at below market value to a new entity, reducing the pool of recoverable assets for creditors while the person continues trading under a new entity.
Inducement of incomplete testimony
Finally, ASIC also alleges that Mr DeFrancesco contravened section 37 of the Crimes Act 1914 (Cth) by offering $50,000 to a person to induce them to withhold true testimony as a witness in a federal proceeding.
That section relevantly makes it a criminal offence for a person to do any act with the intention of inducing a witness in a federal judicial proceeding to give false testimony or withhold true testimony.
Significance
This case represents the first time that ASIC has brought a charge alleging criminal creditor-defeating dispositions since the section was added to the Corporations Act in 2020.
While civil penalties for creditor-defeating dispositions have long been enforced, this action reminds possibly contravenors that criminal sanctions can apply for commercial misconduct.
Both the prohibition on misuse of position and the prohibition on creditor-defeating dispositions have corresponding civil provisions that require a lower degree of fault.
The prosecution demonstrates the importance of obtaining and following clear legal advice on how to navigate insolvency, and the consequences of failing to abide by statutory requirements. The allegations make clear that ASIC is willing to prosecute individuals who contravene statutory requirements.
Sladen Legal is happy to assist in navigating the complex requirements that arise during this process.
If you have any queries regarding this prosecution and its consequences for you, please feel free to contact Alicia Hill or Amy Green.
This article was prepared with the assistance of Charlie Cooper, Paralegal.
