The Australian Securities & Investments Commission (ASIC) recently announced a targeting of company directors with a history of failed companies as part of a surveillance program to combat illegal phoenix activity.

Phoenix activity is the fraudulent act of transferring the assets of an indebted company into the new company to avoid paying creditors, tax or employee entitlements. The new company, usually operated by the same director or directors, continues the business under a new structure to avoid their responsibilities to their creditors.

Common indicators of illegal phoenix activity include:

•  The company fails or is unable to pay its debts

•  Directors act in a manner which internationally denies unsecured creditors equal access to the company’s assets in order to meet unpaid debts

•  Soon after the failure of the initial company (usually within 12 months), a new company commences using some or all of the assets of the former business, and is controlled by parties related to either the management or directors of the previous entity.

Research compiled for the ASIC stated that such activity costs the Australian economy more than $3 billion annually. The ASIC commissioner states, ‘We are looking at failed companies, mostly within the small business sector, from July 2011 onwards where there have been allegations of illegal pheonixing.” ASIC is said to be focusing on companies involved in building and construction, labour hire, transport, security and cleaning. A target group of 1,400 companies and approximately 2,500 individuals have been identified so far.

Partaking in phoenix activity is a criminal matter. If you require advice in regards to such activity or believe you may be involved in phoenix activity you need to act immediately. Our tax lawyers and tax accountants at The Quinn Group can advise you on any matters relating to phoenix activity. Call us on 02 9223 9166 to arrange an appointment or submit an online enquiry today.