Illegal phoenixing gets snuffed out
The Government continues to target illegal phoenixing arrangements where a new company is established to continue the business of another entity that was liquidated to avoid paying its liabilities. Phoenixing has a negative effect on the economy at large through increased costs to regulators and a loss of tax revenue, and at an individual level through the avoidance of employee entitlements including wages, superannuation, and accrued leave.
The Government intends to extend the current anti-phoenixing provisions within the corporations and tax laws, and includes reforms to:
- Introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing
- Prevent directors improperly backdating resignations to avoid liability or prosecution
- Limit the ability of directors to resign when this would leave the company with no directors
- Restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator
- Extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts
- Expand the ATO’s power to retain refunds where there are outstanding tax lodgements.
These reforms act in concert with the Government’s Phoenix, Serious Financial Crime and Black Economy taskforces, and other announced reforms such as a Director Identification Number, and a combined black economy and illegal phoenixing hotline.
There is no revenue impact to the Commonwealth as the amounts collected under these measures are paid to the States. Notwithstanding the Director Penalty Regime is slated to raise $40.0 million over the forward estimates.
BDO acknowledges that there are loopholes in the current system allowing phoenix operators to gain unfair advantage over honest competing businesses. However, crucial to the effectiveness of the proposed reforms is to ensure they target illegitimate phoenix activities without jeopardising legitimate business behaviour. The proposed reforms present a welcome change in direction from reactive to proactive measures, with a view to deterrence.