Illegal Phoenix Activity

A recent study by PwC suggests illegal phoenix activity is costing Australia between $2.85 billion and $5.13 billion a year.

While there are many failed businesses that manage a legitimate rebirth of sorts following a liquidation process in which creditors and employees are treated fairly, there are others where assets are gradually siphoned off and liquidation is used as a way of avoiding obligations to creditors and employees while the business carries on under a new guise.

Unfortunately, there appears to be a growing trend of professional intermediaries actively promoting and facilitating illegal phoenix behaviour – advising business owners how best to transfer assets from one corporate entity to another in order to avoid paying entitlements and honouring their liabilities.

While the Federal Government last month announced a ‘Phoenix Hotline’ (1800 807 875) in an attempt to combat the activity of dishonest directors, it is difficult to reconcile this with recent reforms aimed at reducing the vulnerability of directors to claims of insolvent trading and dramatically cutting back the length of time a director need be considered ‘bankrupt’.

NCI and its partner, Results Legal, are currently putting on presentations around the country on this subject.

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