ASIC targets ‘pre-insolvency’ advisers helping business to cheat

They have carved out careers advising financially struggling businesses on how to rort the tax system and potentially rip off innocent investors. But a high-level taskforce now has “pre-insolvency” advisers in their sights. HOW THEY DO IT

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A high-level taskforce in ASIC has begun targeting advisers who it is claimed teach businesses to use complicated structures to avoid paying debts.

The crackdown on “phoenixing” is looking at “pre-insolvency” advisers who approach financially struggling businesses and show them how to hive-off assets and keep operating, potentially leaving creditors out of pocket.

Businesses are losing between $1.1 billion and $3.1 billion a year through unpaid debts of phoenix operators, according to PwC.

“People don’t just wake up and know how to do this stuff so either they’ve done it before and nothing’s happened to them or someone’s giving them advice on how to do it,” ASIC commissioner John Price said.

ASIC commissioner John Price. Picture: Aaron Francis

“We focus particularly on insolvency practitioners who might be facilitators in this area.”

While declining to comment on any case currently before the courts, Mr Price said pre-insolvency advisers are often not registered liquidators and operate outside of professional liquidators’ regulations.

“The hallmarks of illegal phoenix activity are you strip the assets _ move the assets _ out of a company that’s in financial trouble for less than what those assets are worth, or even for nothing,” Mr Price said.

“You put those assets into a new company, which sometimes has a very similar name to the old company, you then basically continue on the business that you had in the new company and you leave all the debts in the old company and just kill it.

“And you do that with the intention of ripping off the creditors. And that will all happen before the old company has gone bust.”

OPINION: Phoenixing leaves nothing but ashes

ASIC is also examining advisers who are targeting businesses which are in financial trouble, writing to them offering rescue services to avoid debt.

ASIC has a secret list of operators they are concerned about and is writing to troubled companies warning them that engaging the services of these operators could land them in trouble with the law.

ATO Deputy Commissioner Will Day. Picture: Daniel Munoz

Assistant Treasurer Michael Sukkar. Picture Gary Ramage

“Before the pre-insolvency advisers write to the company, we write to the company (saying), ‘If you’re in financial trouble and you get a letter out of the blue from this adviser who says they’re going to solve all your problems, you want to be very careful about your legal obligations’.

“And that has actually worked a treat.”

Australian Taxation Office Deputy Commissioner Will Day said the phoenix taskforce made up of 36 state and federal agencies and police has 10 major operations related to phoenixing currently underway, a number of them targeting advisers.

“Our focus is not just on those who participate or willingly engage in illegal phoenix behaviour … (but also) those who promote illegal phoenix activity _ these are the professional enablers, providing pre-insolvency advice or other services that facilitate phoenix behaviour,” Mr Day said.

New legislation before federal parliament introduces specific offences for advisers who help companies set up phoenix structures and strip out assets.

“There will … be a stand-alone offence and civil penalty provision to target pre-insolvency advisers who procure or encourage a company to strip and transfer assets at undervalue,” a spokesman for Assistant Treasurer Michael Sukkar said.