A phoenix company is when a company is closed down but the business is transferred to a new company and continues to trade using the same or a similar name as before. Typically the assets owned by the old company are also transferred to the new company for no or insufficient consideration. The new company has therefore received the business and assets owned by the old company illegally and this type of arrangement is known as a Phoenix Company.
What this does is to leave all the unpaid debts in the old company, meaning that suppliers and creditors will be left empty-handed. In most cases the old company is then liquidated or just abandoned.
Phoenix activity is illegal. Any director who engages in any kind of illegal phoenix activity may face serious consequences.
It is important to note that not all companies which are placed into liquidation are the result of illegal phoenix activity so it is important to be able to recognise key characteristics of a phoenix company:
- The underlying business of the old company remains the same and is transferred into a new company controlled by parties who are associated with those from the previous company.
- The creditors of the old company are left unpaid. and Insufficient or no consideration was paid for the transferred assets.
What is the impact of illegal phoenix activity?
Whilst a phoenix company may seem like an ideal way to get out of paying for company debts, it bears serious consequences. Company directors or parties who engage in this activity will face serious consequences. These may include:
- A director banning order from ASIC.
- A claim for insolvent trading; and
- A claim for compensation for the value of the assets transferred.
Customers who remain unpaid may also place the new company on COD or perhaps even refuse to supply goods or services to the new company.
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.