Government moves to crack down on illegal phoenixing

- August 17, 2018 2 MIN READ

Revenue and Financial Services Minister Kelly O’Dwyer has released draft legislation aimed at cracking down on illegal phoenixing.

The legislation plans to make phoenixing activity a punishable offence and aims to prevent company directors from engaging in the type of dodgy behaviour which currently limits their personal liability such as backdating resignations or leaving a company with no directors. 

the legislation has been introduced following the findings of a report which revealed phoenixing is costing the economy as much as $5 billion a year through unpaid wages, invoices and tax bills.

“Phoenixing hurts hard-working Australians, including the company’s employees, suppliers, customers and competing businesses. It causes a significant drain on the Australian economy,” O’Dwyer commented.

“The Turnbull government has shown its commitment to taking tough action against fraudulent behaviour like phoenixing. For those who try to beat the system, it’s only a matter of time before the law catches up with them.”

The draft legislation also moves to make pre-insolvency advisers and other facilitators of illegal phoenix activities liable.

Small Business and Family Enterprise Ombudsman, Kate Carnell, said the proposed package of reforms clearly identify which activities, in the course of transferring assets, are illegal. She described the focus on company directors as ‘essential’.

“Directors won’t be able to transfer company assets that affect creditor payments, and they won’t be able to backdate resignations to avoid liability or leave the company as an empty corporate shell.”

Carnell suggested the move to target pre-insolvency advisers and other facilitators was also a breakthrough.

“Holding the facilitators accountable will reduce access to the specialist knowledge required to deliberately liquidate an entity with the intention to operate and profit through other trading entities,” she said.

Speaking of the legislative changes, Minister O’Dwyer said the reforms would benefit all Australians.

“The government is cracking down on illegal phoenix activity for the benefit of all the hard-working Australians who are negatively affected by this abhorrent behaviour,” she said.

“This reform package is based on strong support provided from stakeholders in response to the consultation paper and is informed by the work of the government’s Phoenix Taskforce. The package will give our regulators better tools to deter and disrupt this illegal activity.”

The Small Business Ombudsman believes the list of proposed reforms will help minimise the impact on small businesses suffering at the hands of Australia’s phoenixing.

“Coupled with the proposed statutory trusts model and the director identification number, we will see genuine protection for subcontractors.

“Currently, if there is any money left, secured creditors come first, the employees are paid wages owing out of the federal government’s FEG (Fair Entitlement Guarantee) and the subbies are left with nothing,” said Carnell.

“We look forward to lodging a constructive submission that will complement the draft legislation and expand on measures to deter and disrupt the core behaviours of illegal phoenixing.”

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