Avoiding the slippery and winding path of phoenix activity!


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Avoiding the slippery and winding path of phoenix activity!

The ATO and ASIC have again been in the headlines recently in relation to phoenix* activity and whilst this makes for good reading, it presents a sound reminder to all of us about the consequences of heading down the slippery and winding path of phoenix activity.

This activity may be tempting for many due to the hollow promises, but as the old saying goes “if it sounds too good to be true, it generally is.”  There is good reason why this old saying still has currency today!

This has brought into sharper focus the actions of pre-insolvency advisors and the regulators from ASIC & ATO have been reenergized.

A special task force drawn from these regulators and the Fair Work Ombudsman are collaborating and sharing sensitive financial and other information to reduce this type of activity on the promoters and perpetrators of the incidence of phoenix and other questionable practices.

Here are some examples of ASIC initiatives to combat illegal phoenix activity:

  1. Enforcement Action: ASIC takes enforcement action against those who facilitate or aid and abet illegal phoenix activity, including directors who breach their duties;
  2. Disqualifying Directors: ASIC can disqualify directors from managing corporations where they have been involved in 2 or more companies placed into liquidation in the past seven years;
  3. Liquidator Assistance Programme: ASIC can assist liquidators to obtain books and records and prosecute the directors;
  4. Education & Engagement: ASIC periodically educates the market of their legal obligations and meet with industry representatives to raise awareness of illegal phoenix activity.  They also work closely with ATO, Fair Work Ombudsman and the Department of Employment to exchange intelligence and information;
  5. and other initiatives such as Director Identity Numbers, Reporting of Tax Debts (see our article Anticipating change-government-law-reforms).

These initiative are concerned with protecting our economy, employees (through non-payment of wages and superannuation) and not giving those that partake in phoenix activity an unfair competitive advantage.

But unfortunately, in times of financial stress, business operators tend to grab onto whatever solution that is presented to them, not giving proper regard to the actual solidness of that solution.  It is like they grab onto the first rope that is thrown to them to resolve the immediate issue, only to find out it is not tethered and secure at the other end, possibly resulting in extreme personal loss.

We can all assist by not letting our clients be victims and fall for these easy but false solutions, peddled by this emerging sector of the market.

So what can we all do?

  1. Be aware of the characteristics indicating phoenix activity, see Indicators
  2. Be wary of your client receiving unsolicited correspondence, particularly after a court action by a creditor or receiving advice from a source where they have not been prepared to put it in writing
  3. Check and verify companies that you deal with by using ASIC Business Checks to see if they are registered, credit history etc.
  4. If you are concerned or suspect possible phoenix activity, report phoenix activity
  5. Encourage your clients to seek advice from trusted and qualified professionals who hold registered liquidators or registered trustee in bankruptcy qualifications. These are very difficult to attain and are the only qualifications recognized by ATO, ASIC and the Courts

If you are ever in doubt and would like a fair and unbiased opinion on any situation, call to speak to one of our experts at the dVT Group cost-free on 02 9633 3333 or visit our website dvtgroup.com.au.

 *Phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.

Source:  (from ASIC.gov.au website – how to complain/illegal phoenix activity)