Dodgy company 'phoenixing' is costing Australia up to $5 billion a year

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  • A study by PwC shows illegal phoenix activity is costing Australia up to $5 billion a year.
  • The Federal Government announced a Phoenix Hotline to report directly to the ATO.
  • Phoenix activity is prevalent in building and construction, labour hire, payroll services, security, cleaning, computer consulting, cafés and restaurants, and childcare services.

Phoenixing — the liquidation of a business to avoid liabilities and to continue the operation under another guise — is costing Australia between $2.85 billion and $5.13 billion a year.

A study by PwC, Economic Impacts of Potential Illegal Phoenix Activity, shows widespread impact on the Australian economy from this type of fraud.

Phoenix companies arise from the ashes of a collapse, usually with the same people operating the business, leaving behind a trail of avoided outstanding payments to tax authorities, creditors, businesses, customers and employees.

The Federal Government today announced a Phoenix Hotline to combat the activity of dishonest directors and their companies.

“Phoenixing hurts hardworking Australians, including the company’s employees, suppliers, customers and competing businesses,” says Financial Services Minister Kelly O’Dwyer.

Last financial year the ATO (Australian Tax Office) sent out tax bills totalling more than $270 million from more than 340 reviews and audits of businesses involved in phoenix activity.

“The new Phoenix Hotline will make it easier to report suspected phoenix behaviour directly to the ATO so they can pursue those who are doing the wrong thing,” says O’Dwyer.

“It will enable timely action to be taken against companies and their directors, safeguarding employee entitlements like wages and superannuation, and ensuring taxes

The Phoenix Hotline is 1800 807 875.

The impact of phoenixing on business, employees and government:

The ATO says illegal phoenix activity is prevalent in building and construction, labour hire, payroll services, security services, cleaning, computer consulting, cafés and restaurants, and childcare services.

The ATO says it also sees phoenixing in regional Australia in mining, agriculture, horticulture and transport.

There is also an emerging trend for intermediaries who promote or facilitate illegal phoenix behaviour.

The Australian Institute of Company Directors (AICD) welcomed the announcement of measures to combat illegal phoenixing.

“Employees, creditors and stakeholders pay the price when unscrupulous individuals misuse the corporate form to strip assets from one company to another to avoid paying entitlements and liabilities,” says AICD Managing Director and CEO Angus Armour.

“The practice also damages confidence in the corporate model, to the detriment of the vast majority of responsible businesses and directors,” he says.

The AICD also supports the introduction of Director Identification Numbers (DINs).

DINs would make it easier for regulators to track the corporate history of individual directors and further support anti-phoenixing measures.

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