‘Phoenixing’ is when directors transfer assets from one company to another for inadequate consideration and then liquidate the company which has all of the unpaid debts left in it. The new company typically uses the same or a similar name to the old company. This is a deliberate attempt to avoid paying their creditors. Such activity affects a range of individuals, including employees, trade creditors and the Australian Taxation Office.
We have written in depth about this issue earlier this year in July. Click here for more information.
According to a new report, phoenixing costs the Australian economy an estimated $3 billion per year. This reform proposes enhanced methods of identifying such activity.
Firstly, mechanisms will be put in place to detect companies and directors who, in the past, have displayed phoenix-type behaviour and characteristics. Additionally, such companies and directors would be labelled as a “Higher Risk Entity” (HRE). This declaration, by the Commissioner of Taxation, means that the HRE will be regarded as a “High Risk Phoenix Operator” (HRPO).
The failure to pay taxes on time and to deliver proper company records, may be indicative of phoenixing activities. This could result in a company director being declared as a HRE, and may lead to civil and criminal penalties.
If your company is insolvent or likely to become insolvent, then act immediately by seeking the help from professionals. Australian Company Liquidations can assist you in shutting down your failed business the right way. Call us on 1800 731 155 for a FREE initial consultation now.