With the rise of the Black Economy which has left a tax deficit of an estimated $50 billion in the Australian economy; the phenomenon known as Business Phoenixing has become prevalent. This is costing the Australian economy up to $5.1 billion per year.
Illegal business phoenixing is where a new company is started that continues from a previous exiting business that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements.
Typically, company directors transfer assets of the existing company to a new company without paying true market value and leaving debts. Once the transference of assets is placed, the old company is liquidated leaving no assets to be sold to recover debt.
Activities of this sort began in the 1970s and 1980s and the first intergovernmental agreement began in 2011 when the Australian Taxation Office (ATO) formed the Inter Agency Phoenix Forum. The Phoenix Taskforce was established in November 2014, and in 2018 comprised of 13 Commonwealth entities and 21 state and territory government entities working together to match data and identify, manage and monitor illegal phoenixing.
Who is in the Taskforce?
The Taskforce today consists of five steering members (which total 37 federal, state and territory governmental agencies), including:
- The ATO
- The Australian Securities and Investments Commission (ASIC)
- The Fair Work Ombudsman
- The Department of Jobs and Small Business
- The Australian Border Force
What are the effects of Phoenixing?
This activity ends up costing the Australian community, employees, contractors, and the government through non payment of wages and entitlements, unfair costing advantages over competition, non-payment of suppliers, loss of taxation revenue that pays for community services and evasion of regulatory obligations.
It deprives the Australian economy of funds for community services such as hospitals, schools, roads and other essential services.
How can you tell if a business is phoenixing?
There are warning signs if a business is phoenixing:
- Employees don’t receive payslips, superannuation and employment entitlements. They may be working under a different business name and haven’t been told
- Employees are paid late, less than the agreed amount and / or under the minimum wage
- The business name and ABN changes but the phone number (particularly the mobile number), email address and business address stay the same
- The directors of the new business are the same as the old business and a similar trading name is used
If you are an employee and believe you are a victim of phoenixing, there are steps you can take. Your tax agent will help you quickly work out if you’re at risk and advise what you can do.
If you run your own small business and you have concerns, your tax agent and accountant can run a credit check on the business you’re concerned about and will also help you make a report. If you have debt outstanding, your tax agent will also be able to help you manage the process and any debt you may have incurred.