The Federal Government should use the Fair Work Act to pursue directors of so-called “phoenix” companies, a report for the Fair Work Ombudsman (FWO) released today advises.
The point is one of 11 suggested actions contained in the PricewaterhouseCoopers (PwC) report: Phoenix activity: sizing-the-problem-and-matching-solutions.
By Rob McKay | July 4, 2012
The Federal Government should use the Fair Work Act to pursue directors of so-called “phoenix” companies, a report for the Fair Work Ombudsman (FWO) released today advises.
The point is one of 11 suggested actions contained in the PricewaterhouseCoopers (PwC) report: Phoenix activity: sizing the problem and matching solutions.
Others included a more coordinated and specialised approach from government agencies, including the FWO, Australian Taxation Office and the Australian Securities and Investments Commission.
The report suggests that such activity affects the economy broadly, saying that modelling puts the cost to business at $992 million-1.9 billion, to employees at $191 million-655 million and to government revenues of $601 million-$610 million, for a total of $1.8 billion-$3.1 billion.
Though the report has no breakdown of suspected phoenix activity in the road freight industry, anecdotal evidence suggest it exists in the industry and that industry participants can be the victims of it.
However, PwC consultation for the report included no transport industry stakeholders.
Those that were suggested several “leading indicators” for phoenix activity.
These included:
- Failure to lodge tax returns and/or business activity statements
- Business and/or tax records that significantly understate or overstate operations, including debts
- Withheld payments, such as pay as you go withholding tax, superannuation and child support payments, being kept by the business
- Workers being pressured to take leave
- Workers status being changed from permanent to casual
- Workers underpaid
- Equipment, machinery and uniforms not replaced as needed.
Lagging indicators for firms already undertaking phoenix activity were also noted.
These included:
- Directors of the new entity being family members of the director of the former company or close associates such and managers of the former business
- Similar trading name being used by the new entitiy
- The same business premises, assets and telephone number being used by the new entity.
In a 2009 Treasury proposals paper, Action against Fraudulent Phoenix Activity, the practice was defined as “the evasion of tax and other liabilities, such as employee entitlements, through the deliberate, systematic and sometimes cyclic liquidation of related corporate trading entities”.
Noting that in some instances only one entity within a group will be liquidated and that in others the corporate group will be stripped of assets and liquidated, the PwC report admits that the diversity of such activity make it difficult to nail down.
However it suggests it should be defined as the “deliberate and systematic liquidation of a corporate trading entity which occurs with the fraudulent or illegal intention” to “avoid tax and other liabilities, such as employee entitlements” and to “continue the operation and profit taking of the business through another trading entity”.
Industry responses to the report were awaited at deadline.
The PwC report can be found here:
