Phoenix activity

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"Similar to the mythical creature from which it takes its name, phoenix activity in its basic form involves the winding up of a company and the subsequent continuation of that business in a new ‘risen’ company.

This activity is undertaken for gain through the evasion of tax and employee entitlements. The Australian Taxation Office (ATO) estimates that the current stock of suspected phoenix cases it is monitoring poses an unacceptable risk to revenue in the order of $600 million.

During an economic downturn, the financial pressures faced by businesses are significant. While the Government has demonstrated its commitment to helping those businesses suffering from the global recession, it is also committed to ensuring that businesses do not structure arrangements in a way that dishonestly maximises personal wealth or creates an unfair competitive advantage.

Fraudulent phoenix activity is an abuse of the corporate form and the privilege of limited liability. At a time of greater uncertainty for workers, the avoidance of employee entitlements such as superannuation and long service leave is particularly unacceptable.

This discussion paper provides an overview of the problems that fraudulent phoenix activities cause in the collection of tax revenue and other employee entitlements. It then presents a range of proposals for the taxation and corporations laws to address them while at the same time not impacting on legitimate business failures. To highlight the nature of fraudulent phoenix activity in Australia, it includes a number of case studies based on the experiences of the ATO."

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