ASIC surveillance targets illegal phoenix activity

The Australian Securities & Investment Commission has launched a new surveillance program to combat illegal phoenix activity that will target company directors with a history of failed companies.

The Australian Securities & Investment Commission has launched a new surveillance program to combat illegal phoenix activity that will target company directors with a history of failed companies.

Phoenix activity is the fraudulent act of transferring the assets of an indebted company into a new company to avoid paying creditors, tax or employee entitlements. The new company, usually operated by the same director, continues the business under a new structure to avoid their responsibilities to their creditors. Research compiled for the Fair Work Ombudsman by PriceWaterhouseCoopers in 2012 puts the cost of this activity to the Australian economy at more than $3 billion annually.

ASIC action to combat phoenix activities includes removing directors who have been involved in two or more failed companies from the industry. As part of the surveillance program, ASIC will focus on the building and construction, labour hire, transport, and security and cleaning industries. 

ASIC Commissioner Greg Tanzer says illegal phoenix activity has far-reaching and unfair consequences. 

“Employees are robbed of wages and entitlements and creditors – many of whom are small businesses – are left behind with a pile of debts,” Tanzer says. “There are also significant unpaid tax liabilities which have a detrimental impact on tax revenue.

“We are looking at failed companies, mostly within the small business sector, from July 2011 onwards where there have been allegations of illegal phoenixing. To date, we’ve identified a target group of 1,400 companies. We’re now paying special attention to approximately 2,500 individuals who were directors at the time these companies failed or ceased being directors shortly before the companies were wound up.

“In some cases, company failures are nothing more than bad luck. But there are some people who deliberately walk away without any intention of meeting liabilities and establish a new company to conduct the same business. We are committed to weeding out these individuals.”

Common indicators of illegal phoenix activity

  • The company fails and is unable to pay its debts.
  • Directors act in a manner which intentionally 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.

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