Government plans to finally crack down on illegal phoenix companies have been announced, including a surprise move to introduce “director identification numbers”.
Phoenix companies have long been a problem for the economy, and many SMEs have lost out in this dodgy practice of avoiding debts and liabilities by transferring assets to a new company. Government figures put the annual loss at up to $3.2 billion.
The bulk of these losses – estimated by ASIC to be as much as $1.93 billion each year – are lumped onto businesses, as unreputable operators avoid paying invoices.
“[It] has been a problem for successive governments over many decades. It hurts all Australians, including employees, creditors, competing businesses and taxpayers,” admitted federal Minister for Revenue and Financial Services Kelly O’Dwyer.
Under the newly unveiled plans, all company directors will be issued director identification numbers or DINs.
“The DIN will identify directors with a unique number, but it will be much more than just a number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people,” Ms O’Dwyer said.
In addition to the new ID numbers, the government is proposing a raft of measures it hopes will reign in the practice and reduce the burden on businesses, employees and its own agencies. These include:
- Establishing specific phoenixing offences to allow regulators to more accurately identify the practice and take action
- Create a special ‘phoenix hotline’ as a single point of contact for businesses, employees and consumers to report such activity
- Powers to enable the ATO to recoup tax liabilities by recovering a security deposit
- Making directors personally liable for GST liabilities
- Banning related entities of a phoenix operator from appointing liquidators
James Person, chief executive of the Australian Chamber of Commerce and Industry (ACCI), said that any move to “stamp out” illegal phoenix activity is welcomed by the business community, provided the action doesn’t adversely affect honest businesses.
“Small and medium-sized businesses in particular can find themselves significantly out of pocket when their invoices go unpaid because of this illegal behaviour,” he said.
“Action to stamp out illegal activity must be surgical in its approach, targeting the problem without discouraging legitimate entrepreneurship.
“It is a fact of life that some legitimate businesses fail; people need to be able to pick themselves up and start again. We need our laws to deter illegal behaviour while encouraging healthy risk taking and innovation.”
The announcement by Ms O’Dwyer comes as one My Business reader called for action on phoenix laws as well as unfair preference laws, in response to news that insolvency pressures will be eased for struggling business owners.
“Time after time we see companies fall over and then see an almost identically named company spring up out of the same or nearby address. ASIC does nothing to catch these crooks and I assume often there is lack of evidence,” the reader said.
“This is at the expense of hard working Australians being screwed out of considerable amounts payable for their goods and services. It also sends many good companies and individuals into liquidation or bankruptcy.”
Coincidentally, ASIC announced it had banned a company director from managing a business for more than three years after an investigation revealed he had engaged in phoenix activities.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.