Illegal phoenix activity involves the intentional transfer of assets from an indebted company to a new company to avoid paying creditors, tax or employee entitlements.

The directors leave the debts with the old company, often placing that company into administration or liquidation, leaving no assets to pay creditors.

Meanwhile, a new company, often operated by the same directors and in the same industry as the old company, continues the business under a new structure. By engaging in this illegal practice, the directors avoid paying debts that are owed to creditors, employees and statutory bodies (e.g. the ATO).

The Minister for Revenue and Financial Services, Kelly O’Dwyer, has announced reforms to deal with illegal phoenixing.

The reforms include:

  • introduction of a Director Identification Number (DIN) – a unique number and interface with other government agencies and databases – to allow regulators to map the relationships between individuals and entities
  • specific phoenixing offences to better enable regulators to take decisive action
  • establishment of a dedicated hotline for reporting illegal phoenix activity
  • extension of the tax promoter penalties 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 any outstanding tax liabilities
  • 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, and
  • prohibiting related entities to the phoenix operator from appointing a liquidator.