Phoenixing activity faces range of reform measures

O’Dwyer gets support for the action coloured with implementation and red tape concerns

Phoenixing activity faces range of reform measures
Kelly O’Dwyer says phoenixing costs the economy up to $3.2 billion a year


The long-expected federal government action against so-called ‘phoenix’ company activity will see directors and business owners given a Director Identification Number (DIN) each, if reform is passed Parliament.

Federal revenue and financial services minister Kelly O’Dwyer says ‘phoenixing’ – the stripping and transfer of assets from one company to another by individuals or entities to avoid paying liabilities – costs the economy up to $3.2 billion a year and is the bane of employees, creditors, competing businesses and taxpayers.

"The DIN will identify directors with a unique number, but it will be much more than just a number," the government says.

"The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people."

Other measures to deter and disrupt the core behaviours of phoenix operators, along with non-directors such as facilitators and advisers include:

defining specific phoenixing offences to better enable regulators to take decisive action against those who engage in this illegal activity

a dedicated phoenix hotline to provide the public with a single point of contact for reporting illegal phoenix activity

the extension of the penalties that apply to those who promote tax avoidance schemes to capture advisers who assist phoenix operators

stronger powers for the ATO to recover a security deposit from suspected phoenix operators, which can be used to cover outstanding tax liabilities, should they arise

making directors personally liable for GST liabilities as part of extended director penalty provisions

preventing directors from backdating their resignations to avoid personal liability or from resigning and leaving a company with no directors

prohibiting related entities to the phoenix operator from appointing a liquidator.

"The Turnbull Government is committed to ensuring individuals who engage in illegal phoenixing activity are held to account and that the regulators are equipped to take stronger action to both deter and penalise phoenixing activity for the benefit of all Australians," O’Dwyer says.


The move has gained Australian Chamber of Commerce and Industry (ACCI) support.

"Australian businesses stand to benefit from the Government’s action to address illegal phoenixing," ACCI chief executive James Pearson says.

"Small and medium sized businesses in particular can find themselves significantly out of pocket when their invoices go unpaid because of this illegal behaviour.

"The Corporations Act already imposes significant reporting obligations on companies and directors, however the business community is open to Director Identification Numbers.

"Action to stamp out illegal activity must be surgical in its approach, targeting the problem without discouraging legitimate entrepreneurship.

"It is a fact of life that some legitimate businesses fail, people need to be able to pick themselves up and start again. We need our laws to deter illegal behaviour while encouraging healthy risk taking and innovation."


Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell commented in a similar vein.

"We support a unique identifier that will enable identification of rogue directors to ensure they can’t be involved in multiple instances of phoenixing.

"Phoenixing hurts small business. When companies phoenix it’s usually the subcontractors and small businesses who suffer; they’re the ones who aren’t paid.

"This is a definite step in the right direction to ensure that small businesses get a fair go.

"The challenge for the government is to ensure this is not just another number with more red tape.

"We’ve already got an ACN [Australian Company Number], ABN [Australian Business Number], a TFN [Tax File Number] and many licences and regulatory requirements for businesses.

"We want to see a scenario where all of this data is consolidated into a single portal that contains all relevant information."

Other measures

The government will also consult on how best to identify high risk individuals who will be subject to new preventative and early intervention tools, including a next-cab-off-the-rank system for appointing liquidators, allowing the ATO to retain tax refunds and allowing the Australian Taxation Office to begin immediate recovery action following the issuance of a Director Penalty Notice (DPN).

Consultation on the non-DIN measures will start in the coming weeks.

O’Dwyer notes the reforms follow action to combat crime and fraud in the economy, including:

instituting the Phoenix, Black Economy and Serious Financial Crime taskforces

strengthening disciplinary rules for insolvency practitioners

legislating to improve information sharing between key regulatory agencies

reviewing and enhancing ASIC’s powers and enforcement tools

consulting on law reform initiatives to curb the excessive drain on the taxpayer funded Fair Entitlement Guarantee scheme, which covers employees’ entitlements left outstanding as a result of failed business enterprises

improving the collection of GST on property transactions from July 1

consulting on a register of beneficial ownership of companies to be made available to key regulators for enforcement purposes.

"The Turnbull Government is committed to ensuring individuals who engage in illegal phoenixing activity are held to account and that the regulators are equipped to take stronger action to both deter and penalise phoenixing activity for the benefit of all Australians," O’Dwyer says.


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