The Australian Securities and Investments Commission (ASIC) has defined phoenix activity as “the fraudulent act of transferring the assets of an indebted company into a new company to avoid paying creditors, tax or employee entitlements”.
The newly arisen ‘phoenix’ company – which is often operated by the same director – continues the business under a new structure to avoid its responsibilities to its creditors.
ASIC commissioner Greg Tanzer said illegal phoenix activity has “far reaching and unfair consequences”.
“Employees are robbed of wages and entitlements, and creditors – many of whom are small businesses – are left behind with a pile of debts. There are also significant unpaid tax liabilities which have a detrimental impact on tax revenue,” he said.
The regulator is paying “special attention” to directors who ceased being directors of 1,400 companies shortly after they were wound up.
ASIC has taken action to combat phoenix activity and this has included removing directors who have been involved in two or more failed companies from the industry.
“In some cases, company failures are nothing more than bad luck. But there are some people who deliberately walk away without any intention of meeting liabilities and establish a new company to conduct the same business. We are committed to weeding out these individuals,” said Mr Tanzer.
