ASIC Releases Hit-List of Illegal Phoenixing Coaches

The Australian Securities & Investments Commission released a hit-list of coaches who encourage companies to perform illegal phoenixing. Phoenixing, as we discussed in-depth in this article, is not illegal per se but it becomes unlawful when the new company continues the business of the liquidated company to evade tax liabilities, creditor payments, and workers’ wages and benefits.  

ASIC Releases Hit-List of Illegal Phoenixing Coaches

The ASIC created the inter-agency group, Phoenix Taskforce, to strengthen its fight against this illegal activity that costs the Australian economy between $2.85b and $5.13b per year. A study from PricewaterhouseCoopers estimates that because of illegal phoenixing governments stand to lose $1.7b in unpaid taxes and compliance costs. Trade creditors lose between $1.2b and $3.2b while employees lose $31m to $298m because of these unlawful activities. 

Phoenix Taskforce, a collaboration among the ASIC, the Australian Taxation Office, and the Fair Work Ombudsman, acts upon tip-offs and issues warnings to notify business owners of their illegal activity. The regulator said common tip-offs include asking for cash payments from customers and paying worker “cash in hand” and businesses not reporting sales. To further bolster the crackdown, the ASIC also introduced a director identification number (DIN) to “provide traceability of a director’s relationships across companies enabling better tracking of directors of failed companies and preventing the use of fictitious identities.”

Warren Day, ASIC’s director for assessment and intelligence, emphasized that companies do fall over and make a fresh start, and that is not illegal. What is illegal is if there is “dishonest intention” on the part of the director, which is why when found to have engaged in illegal phoenixing activities, a director, and all other people who helped accomplish the illegal activity will be penalised. The ASIC identified these people as pre-insolvency adviser, valuer, liquidator, dummy directors, and phoenix operators as those who might be coaching companies to commit dodgy business practices.

“We will use a broader range of offences … against pre-insolvency advisers and directors to send a strong message that companies do fall over but if a person is assisted and a director makes a decision to illegally phoenix then there is a wide range of regulatory tools to hold them to account,” Mr Day he said in an interview with SmartCompany

Since 2018, the Phoenix Taskforce has secured nine criminal prosecutions relating to illegal phoenix behaviour and the ASIC has disqualified 30 company directors. The past year had the regular giving prison sentence to the insolvency adviser for siphoning money from defunct telco dealer Cap Coast Telecoms. An NSW developer was also given a six-year sentence for defrauding the ATO through phoenix activity.  

The ASIC has identified the construction, labour-hire, and transport and logistics industries as the industries where phoenixing is most prevalent. Aislinn Walwyn, an ATO assistant commissioner, hopes the new rules allowing public disclosure of tax debts by businesses would help the community know who has racked up more than $100,000 in tax debts and give them a basis to report to credit agencies.

Many companies are unaware that who they’re dealing with is now a new entity because the people they’re dealing with remain the same. One of the tell-tale signs that your debtor is going through financial difficulty is when it is no longer able to pay debts on time or is now seeking further extension of payment terms. Another sign is when the company changes its name to its Australian Company Number (ACN). We have pointed out that this has catastrophic effect on companies who are trying to do honest business.  

Slater Byrne Recoveries recommends creating a company policy where if a debt hits 30+days, it is immediately referred to a Debt Collection company, and another policy that asks a company director to sign a personal guarantee for the debt. 

“Otherwise, they run the risk of not getting paid at all & the domino effect that can cause can mean the creditor is forced into bankruptcy or liquidation themselves,” Annabelle Parry, Director at Slater Byrne, says. 

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