New laws to fight phoenixing

SBDC e-news – October 2017

The Federal Government is planning to introduce a comprehensive package of reforms to crack down on illegal phoenixing activities by unscrupulous business directors.

Phoenixing is the deliberate stripping and transfer of assets from one company to another to avoid paying liabilities such as tax, creditors and employee entitlements. It’s estimated that phoenixing costs the economy up to $3.2 billion each year.

A key element of the Government’s proposed package is a Director Identification Number (DIN) that will align with other government agencies and databases, so regulators can track relationships between individuals and their business activities.

The package is also set to include a range of measures to deter and disrupt the core behaviours of phoenix operators and their advisers or ‘facilitators’.

These measures include specific phoenixing laws that will allow regulators to take decisive action; a dedicated hotline for the public to report illegal phoenixing activity; greater penalties for those who promote tax avoidance schemes; and stronger powers for the ATO to recover outstanding tax liabilities.

The Government will also be consulting on how best to identify high risk individuals who will be subject to new preventative and early intervention measures.

According to the Productivity Commission, an estimated 2,000 businesses per year are involved in phoenix activities.

Small Business Commissioner, David Eaton says taking legislative action against phoenixing is a welcome move.

“Phoenixing not only robs honest people of their incomes, it gives the perpetrators an unfair competitive advantage against the businesses that play by the rules.

“It’s important to deter as well as penalise those who believe phoenixing is a genuine business option.”

See what’s up for discussion on these new phoenixing measures.

From the Commissioner

One of my first tasks as Small Business Commissioner was to report to government on issues surrounding the non-payment of subcontractors on government projects. A most disturbing finding was the number of building companies that went out of business owing thousands of dollars to small business tradies and suppliers, only to re-emerge under a different name to continue trading debt free.

Phoenixing of this kind is a scourge on the business community and something that needs serious attention. The Federal Government’s plan to assign company directors a unique identification number may be the answer to preventing unscrupulous company directors from behaving in this fraudulent way.

However, in implementing a workable solution, we don’t want to crush innovation or the courage it takes to try again when a first attempt at business fails. There are distinct differences between a ‘false start’ and deliberate, manipulated phoenixing and this should be taken into account in devising any solution.

This month, we’re also taking a look at ways to cut your operating expenses, an update on the changes banks are making for their small business customers, and the government’s inquiry into the use of helium, which could ultimately affect many small businesses.

I hope you enjoy this month’s e-news and find our information useful. If you’d like more details on any of the topics covered, please contact my office on 13 12 49. David Eaton, Small Business Commissioner.