Illegal phoenix activity is a serious crime and may result in company officers (directors and secretaries) being imprisoned. It affects hundreds of Australian workers every year. Employees are usually left with unpaid wages and entitlements and creditors are left with nothing but debt.
This activity is becoming alarming now because it’s been reported that phoenixing companies is too easy, cheap and is largely invisible.
What is Illegal Phoenix Activity?
Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.
Illegal phoenix activity is a serious crime and may result in company officers (directors and secretaries) being imprisoned.
Characteristics of illegal phoenix activity
While illegal phoenix activity can take many forms, the key characteristics are that:
- the company fails and is unable to pay its debts
- the company acts in a manner that intentionally denies unsecured creditors equal access to the company’s assets to meet and pay debts
- soon after the failure of the initial company (usually within 12 months), a new company commences which may use some or all of the assets of the former business and is controlled by parties related to either the management or directors of the previous company.
Warning signs and how to protect yourself
Whether you are a business owner working with other businesses, or a contractor or employee, there are signs to look out for that may indicate a company is involved in illegal phoenix activity.
If you are working for a company, look out for these warning signs:
- you don’t receive a pay slip
- the company ABN and name changes, but the phone number or address stays the same
- superannuation or other employment entitlements are not being paid
- payroll is paid late, less than what it should be or you are being paid under the minimum wage
- your pay slip records a different employer name to whom you believe you work for.
These may be warning signs that your employer is involved in an illegal phoenix operation. We encourage you to protect yourself by taking the following steps:
- call your super fund and make sure your superannuation is being paid
- if your employer changes their name or information on your pay slip, or you are being paid irregularly – ask why. You can also call the Fair Work Ombudsman for advice
- do an online search to check for any negative coverage.
If you own a business, look out for any of the following behaviors from a company you are working with:
- a competitor is offering significantly lower quotes or you are given a quote that is lower than market value
- the directors of a company you are working with have been involved with liquidated entities
- a company you are working with requests payments to a new company
- recent changes of company directors and name, but the manager and staff remain the same.
These may be warning signs a business you are dealing with is involved in illegal phoenix activity. There are steps you can take to protect your business. We advise doing your due diligence before entering into a business arrangement:
- confirm the entity is registered and its Australian business number (ABN) is valid at abr.business.gov.au
- visit asic.gov.au and search the ASIC Connect registers to ensure the company you are working with is a registered entity and if it is in liquidation or external administration
- ask for references
- do a credit check on the entity
- complete an online search on the company and its directors for any adverse media reports.
The government is committed to preventing phoenix abuse and assisting those who may have been victims of illegal phoenix activity. There is Phoenix Taskforce that comprises over 20 Federal, State and Territory government agencies, including the ATO, Australian Securities & Investments Commission (ASIC), Department of Employment, and the Fair Work Ombudsman. The Phoenix Taskforce provides a whole-of-government approach to combating illegal phoenix activity.
The government is doing everything they can to stop this problem but they need help from all Australians to assist them in putting a stop to illegal phoenix activity. If you suspect phoenix behaviour, you can report it to them by phone on 1800 060 062 or email them at [email protected]
If you have concerns or would like to talk this through further with one of our business specialists, organise a meeting today.