Illegal phoenix activity - video transcript

Transcript of video about what to do if you have a dispute over a similar business name, presented by Jamie, ASIC's Misconduct and Breach Reporting team, uploaded 16 May 2016.

What is phoenix activity?

Phoenix activity refers to the registration of a company to take over from the business of a failed or insolvent predecessor company.

Does phoenix activity indicate something illegal is going on?

Phoenix activity is not necessarily breaking the law.

The law will generally excuse directors and shareholders for companies' failures and for their debts.

A director may run a company in a responsible legal manner but because of business reasons or economic reasons be unable to pay the debts of the company. So at the point where the director becomes aware of the company not being able to meet its financial obligations, they're really under an obligation to hand the company over to liquidators to use the assets of the company to pay the creditors. So the directors will then be able to potentially start another company and this company could take over the same or other businesses. And in fact as a result of the administration or the creditors accepting a deed of company arrangement that may well be the case where the current directors do start up another company to continue on the business.

When might phoenix activity indicate illegal activity?

The key for looking at illegal activity through a phoenix operation is that the directors have deliberately attempted to avoid paying their creditors or any of their taxes through illegal conduct.

Now again, the directors may run the company legally or responsibly and legally but the company may fail or be unable to pay its debts. If at this stage the directors attempt to transfer the assets away to a similar company or transfer the assets out before appointing a liquidator, then that may be an indication of illegal activity. And that's because the liquidator will be attempting to use the assets to pay the creditors and so by the directors transferring the assets before appointing the liquidator then this is really an attempt to avoid paying the creditors. Which could include employees, tax obligations and other creditors generally.

What can I do if I have concerns about phoenix activity?

As a supplier of goods and services?

If you are looking to do business with a company then you should ask them questions about their operations and seek to verify the answers on the ASIC Business Checks.

For example, consider whether the business is registered or consider whether you need to look at its credit history. Using ASIC Connect you can check if the company is in liquidation or is under administration. Now if it's in liquidation that's not necessarily an indicator that you shouldn't deal with them; you should certainly contact the liquidator and find out what the company can and can't do.

If you suspect that a business is breaking the law then please do lodge a report with ASIC or contact us.

As an employee owed entitlements?

As an employee, if you feel you are owed entitlements then the first thing to do really is contact the Fair Work Ombudsman and to make sure that you are entitled to those entitlements from your employer.

You should also contact the Australian Taxation Office or the ATO and they will be able to confirm for you whether or not your employer has been paying your superannuation contributions and give you an indication of whether there is any superannuation outstanding.

Thirdly, you should contact the liquidator as you will need to register or make the liquidator aware that you are a creditor to the company.

And finally, if you are unable to get your entitlements out of the company the government does offer a Fair Entitlements Guarantee or FEG and that's a statutory scheme which is able to provide you with some coverage for unpaid leave entitlements or long service leave or some unpaid wages. There are certain conditions around that and we would encourage you to read about that on their website.

As an employee with evidence of illegal phoenix activity?

If you have evidence of a company undertaking illegal phoenix activity then we would encourage you to report that ASIC through our website as soon as possible.

As a director of a company in financial trouble?

If you are the director of a company and you do feel like you are in financial trouble or your company is unable to meets its financial obligations, then you do have some significant obligations that you need to meet.

So we would encourage you to seek legal advice and also to consult the insolvency information sheets that ASIC has on its website. We do have quite a bit of information for directors there and that would be a good first place to go.

What is ASIC's role here?

First of all, if you are involved with a company that's gone into liquidation, then the first person to contact really would be the liquidator as they will be the people able to give you the most information about the liquidation.

When dealing with ASIC it's important to understand that we don't act for individuals. As the regulator we will be looking at it from a regulatory basis and so it's important that you do seek your own advice and look at your own remedies first.

In terms of what ASIC will look at, we will have a consideration of the market impact of the liquidation and consider the public interest in terms of whether or not we will become involved. And from a regulatory point of view we will be needing to show that the directors have intentionally misused the company assets and that that use is contrary to the businesses interests.

If ASIC do get involved then we have a number of initiatives that we can undertake to combat phoenix activity that can include:

  • enforcement action either civil or criminal penalties to consider
  • disqualifying the directors if we feel that there's a risk they'll continue to do this or if they've done this a number of times in the past
  • we also have the option to fund the liquidators to undertake further investigation through the Assetless Administration Fund
  • we can assist the liquidators in the process in terms of getting access to the company records
  • as well as general education programs and industry engagement that ASIC conducts with major industry bodies and people in the finance industry.

Finally, if you are unsure you can certainly go to our website and read the further information that we have there.

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Last updated: 17/05/2016 03:58