Govt turns to industry over illegal phoenixing crackdown reforms

Local tech players can pitch on the Federal Government’s moves to crack down on illegal phoenixing activity by local businesses.

Australia’s Minister for Revenue and Financial Services, Kelly O'Dwyer, released a public consultation paper entitled ‘Combatting Illegal Phoenixing’ on 28 September, aiming to gauge what all local industry thinks about its proposed law reforms to throttle the practice.

The consultation represents a key step in the Government’s delivery of a comprehensive package of reforms to address illegal phoenixing.

So-called phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. It is also illegal.

There are some industry sectors in which phoenix activity has been particularly rife, such as the construction industry. At the same time, however, the local IT industry has not been immune to such activity.

In mid-September, the Federal Government revealed that one of the steps it intends to take in order to reduce the practice of illegal phoenixing would be assigning company directors with their own identification numbers.

The move, which will effectively see individuals tagged with their own unique ID numbers, is aimed at keeping a closer eye on company directors in the hope of preventing dodgy operators from deliberately ditching their businesses and setting up new companies free of debt.

“The Government’s comprehensive package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity,” the Government said in a statement.

The DIN will identify directors with a unique number. It will also interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.

According to the consultation paper, the Government also plans to amend the Corporations Act 2001 (Corporations Act) to specifically prohibit the transfer of property from one company to another if the main purpose of the transfer is to prevent, hinder or delay the process of that property becoming available for division among the first company’s creditors.

Such an offence would give rise to a right in creditors and liquidators, as well as Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), to sue for compensation for the loss caused by the conduct of those who engage in the prescribed conduct, as well as those who are knowingly involved in that conduct.

“The Government is committed to helping the honest and diligent entrepreneurs who drive Australia’s productivity, but we won’t tolerate those who misuse the corporate framework for their own advantage,” O’Dwyer said.

Further details about the consultation paper can be found here.