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. It only 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

Phoenix Taskforce

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

The taskforce — a collaboration among the ASIC, the Australian Taxation Office, and the Fair Work Ombudsman — acts upon tip-offs. Following receipt of tip-offs, the taskforce issues warnings to business owners. Common tip-offs include asking for cash payments from customers. Other tip-offs also include 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.”

Falling Over Not Illegal

Companies to fall over and make a fresh start. And, Warren Day, ASIC’s director for assessment and intelligence, emphasized that falling over is not illegal. What is illegal is if the “dishonest intention” on the part of the director. Thus, when the government finds a director to have engaged in illegal phoenixing activities, that director will be penalised. The penalties also apply to other individuals who help commit the dodgy activities. These people include pre-insolvency adviser, valuer, liquidator, dummy directors, and phoenix operators.

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.

Warren Day, ASIC director for assessment and intelligence.

Since 2018, the Phoenix Taskforce has secured nine criminal prosecutions relating to illegal phoenix behaviour. Moreover, the ASIC has disqualified 30 company directors. The regulator has even given prison sentences to two individuals in the past year. One was an insolvency adviser for siphoning money from defunct telco dealer Cap Coast Telecoms. The other was an NSW developer who defrauded the ATO through phoenix activity.  

Phoenixing Most Prevalent in Construction

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.

Phoenixing does not only affect the government’s tax collection efforts. It also affects the financial situation of many businesses. In the debt collection industry, we’ve identified that untimely payment of invoices is a sign your debtor is going through financial difficulty. We always remind our clients to ensure the debtor has an Australian Company Number (ACN) as many companies become unaware that they are now dealing with a new entity. In one of our case studies, our client found it the hard way that the original debtor was no longer existing.

Slater Byrne Recoveries recommends creating a company policy where if a debt hits 30+days, you immediately refer it to a Debt Collection company. We also suggest to make it a policy to ask 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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