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.
The Cole Royal Commission found that fraudulent phoenix activity was prevalent in the building and construction industry. The Hon. Terrence Cole recommended the powers of the Australian Securities and Investments Commission (ASIC) and the Australian Tax Office (ATO) to combat fraudulent phoenix activities. The ABCC refers allegations of potential fraud to these agencies for investigation.
Reporting fraudulent phoenix activities
ASIC administers the Assetless Administration Fund which has a particular focus on curbing fraudulent phoenix activity. ASIC finances preliminary investigations and reports by liquidators into the failure of companies with few or no assets. Following the investigations ASIC will decide whether to take enforcement action.
If you suspect that your employer is having financial difficulties first raise your concerns with your employer. If this fails to resolve your concerns you can lodge a complaint with ASIC.
ASIC also maintain a register of banned and disqualified persons who are not allowed to work as a director of a company due to their previous activities. More information on phoenix activities and the Register for Banned and Disqualified Persons is available from the ASIC website.
ATO powers to counter fraudulent phoenix activities
From 1 July 2011, tougher tax laws to counter phoenix activity will take effect. The changes include:
- making directors personally liable for their company's failure to pay employee superannuation
- new ATO powers to commence recovery against directors for certain unpaid company liabilities that remain unreported after three months of becoming due, and
- the prevention of directors and associates of directors from obtaining credits for withheld amounts in their individual tax returns where the company has failed to pay withheld amounts to the ATO.
The new laws aim to ensure that employees receive their correct entitlements following a company collapse. More information on these changes is available in the 2011-12 Budget Papers.
General Employee Entitlements and Redundancy Scheme
Employees who have lost their job due to the liquidation or bankruptcy of their employer and are owed certain employment entitlements can lodge a claim through the General Employee Entitlements and Redundancy Scheme (GEERS). GEERS covers capped unpaid wages, annual and long service leave, capped payment in lieu of notice and capped redundancy pay.
For more information on the GEERS process and how to lodge a claim visit the DEEWR website or call the GEERS Hotline on 1300 135 040.