ASIC targets ‘coaches’ in anti-phoenix crackdown

The corporate regulator has drawn up a hit-list of coaches teaching how to illegally ‘phoenix’ businesses to avoid paying creditors.

The corporate regulator has drawn up a hit-list of insolvency advisers and directors it believes are coaching others on how to illegally “phoenix” businesses to avoid paying creditors.

Warren Day, the Australian Securities & Investments Commission’s executive director for assessment and intelligence, said the list formed part of the corporate regulator’s anti-phoenixing weaponry as a crackdown from all sides of government intensified.

“We will use a broader range of offences … against pre-insolvency advisers and directors to send a strong message that companies do fall over but if a person is assisted and a director makes a decision to illegally phoenix then there is a wide range of regulatory tools to hold them to account,” he said.

“We have got a list (of pre-insolvency advisers who coach businesses in phoenixing), we work with our partners at the ATO and the Phoenix Taskforce … to identify the opportunities and tools and pick the best to address the problem.

“Illegal phoenix behaviour is a learned behaviour.”

Phoenixing occurs when the assets of a business under strain are stripped away and the company is deliberately liquidated, leaving nothing behind for creditors, which often include employees. Assets are often shifted to a new entity that begins trading, sometimes under a similar name.

An analysis by audit firm PricewaterhouseCoopers estimates illegal phoenix activity costs the Australian economy between $2.85bn and $5.13bn annually.  This includes a cost to unpaid trade creditors of between $1.2bn and $3.2bn, while employees stand to lose $31m to $298m each year. Governments are estimated to lose out from unpaid taxes and compliance costs of about $1.7bn.

ASIC has set up an investigative unit focused on phoenixing, which has the powers to tell a business to open its books and demonstrate whether or not it is planning such a course.

Even if there is no direct evidence, the regulator says it will issue warnings, putting business owners on notice. ASIC is targeting several industries where it believes the problem is most prevalent, with construction, labour hire, and transport and logistics the top three priorities.

“We do our own proactive work … to identify high-risk targets: people we think are likely to perpetrate phoenix now and into the future,” Mr Day said.

The regulator is capitalising on a string of successful prosecutions in the past year in a bid to stamp out rogue insolvency advisers teaching others in the industry how to phoenix.

This includes a prison sentence given to an insolvency adviser for siphoning money from defunct telco dealer Cap Coast Telecoms.

Elsewhere, a NSW property developer was last year given a six-year sentence for defrauding the ATO through phoenix activity.

Mr Day said the introduction of a director identification number will make a major difference in stopping phoenixing but conceded it would not completely stamp out the practice. “It will assist in identifying problematic directors,” he said.

The multi-agency Phoenix Taskforce is conducting a crackdown on the practice. It includes dozens of criminal and financial regulators on both state and federal levels and is led by ASIC, the Australian Taxation Office and the Fair Work Ombudsman.

Since 2018 the Phoenix Taskforce has secured nine criminal prosecutions relating to illegal phoenix behaviour and ASIC has disqualified 30 company directors. A special phoenixing hotline operated by the ATO has received 1800 tip-offs since July last year, of which about half were referred for further investigation. The most common tip-offs concerned demanding cash payments from customers and/or paying workers “cash in hand”, and businesses not reporting sales. These are all warning signs of phoenixing, regulators say.

ATO assistant commissioner for integrated compliance Aislinn Walwyn said building and construction were of particular concern. She said illegal phoenixing was “a wicked problem” but hoped new rules that allowed the public disclosure of tax debts by businesses would go some way to tackling it.

“(It) will allow people in the community to see if someone has racked up tax debts of more than $100,000 to the ATO that will be reported to credit agencies,” she said.