Plan to send phoenix activity up in flames

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Plan to send phoenix activity up in flames

A raft of measures will be introduced to tackle “phoenixing” – the stripping and transferring of assets from one company to another entity for the purpose of attempting to avoid paying liabilities.

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A raft of measures will be introduced to tackle “phoenixing” – the stripping and transferring of assets from one company to another entity for the purpose of attempting to avoid paying liabilities. 

Key among these is the introduction of a “Director Identification Number” or DIN. 

“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,” a government statement says. 

Industry welcomes plan 


Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman commented: “We support a unique identifier that will enable identification of rogue directors to ensure they can’t be involved in multiple instances of phoenixing. Phoenixing hurts small business. When companies phoenix it’s usually the subcontractors and small businesses who suffer; they’re the ones who aren’t paid.”

The Australian Chamber of Commerce and Industry also welcomed the move.

James Pearson, chief executive of the Australian Chamber, said: "Australian businesses stand to benefit from the government's action to address illegal phoenixing. Small and medium-sized businesses in particular can find themselves significantly out of pocket when their invoices go unpaid because of this illegal behaviour. The Corporations Act already imposes significant reporting obligations on companies and directors, however the business community is open to Director Identification Numbers."

A variety of other measures will be introduced and those of most interest to human resources managers and directors include:
  • Creation of specific phoenixing offences 
  • The establishment of a dedicated phoenix hotline 
  • Making directors personally liable for GST liabilities as part of extended director penalty provisions;
  • Preventing directors from backdating their resignations to avoid personal liability or from resigning and leaving a company with no directors.
Consultation will also take place on a variety of matters relevant to senior/director-level HR managers. One measure includes consultation on reform to reduce the demand on the taxpayer-funded Fair Entitlement Guarantee scheme, which covers employees’ entitlements when a business fails. 
 
Between March and August 2017, the Australian Securities & Investments Commission helped employees gain access to the Fair Entitlements Guarantee scheme (FEG) by exercising its wind-up powers and appointing liquidators to 11 abandoned companies. The 11 companies owed at least 29 employees more than $650,000 in employee entitlements.

The FEG is a legislative safety net scheme funded by the Commonwealth government. It helps employees to receive employee entitlements that are unpaid because of their employer company’s liquidation or bankruptcy. 

Banned


Meanwhile, one recent example of alleged phoenixing activity saw Steven Andrew Soong, of Concord New South Wales, banned last week by ASIC from managing corporations for three and a half years.

Mr Soong's banning follows the appointment of liquidators to three companies he managed, Kalnosa Pty Ltd, Linsari Pty Ltd and Larsay Pty Ltd. The three companies owed more than $1.2m in tax liabilities.

ASIC became worried that Mr Soong used tax debts that were collected on labour hire costs to continue trading instead of sending the monies to the Australian Taxation Office.
 
The ban on Mr Soong's took effect from 7 September 2017.
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