Putting out the fire – cracking down on illegal phoenix activity

‘We didn’t start the fire
It was always burning since the world’s been turning
We didn’t start the fire
No, we didn’t light it, but we tried to fight it’1

The Illegal Phoenix 
Illegal phoenixing is a major problem in corporate Australia.  In this post we consider what illegal phoenix activity is, how the problem is affecting the Australian economy and the recent regulatory crackdown on the issue.

In Greek mythology a phoenix is a mythical bird which obtains new life by rising from the ashes of its predecessor.  Illegal phoenix activity involves the intentional transfer of assets at an undervalue from an indebted company to a new ‘phoenix’ company.  The old company remains with its debts and is often placed into liquidation (or is left to be wound up on the application of a creditor) – stripped of any valuable assets, with nothing left to pay creditors.

How significant is the problem?
Illegal phoenixing has been estimated to cost the Australian economy more than $3 billion a year2. Employees, businesses and the Government are affected by:

  • unpaid wages and other entitlements
  • unpaid debts and unpaid tax
  • goods and services paid for, but not provided, and
  • the cost to Government of payments made to employees under the Fair Entitlement Guarantee3.

The negative economic impact of illegal phoenix activity is exacerbated by unquantifiable factors, including the unfair competitive advantage obtained by companies that avoid paying their debts.

Illegal phoenixing in the construction industry in particular lead to a Senate Inquiry, the outcomes of which were published on 3 December 2015 in the Senate Report ‘Insolvency in the Australian Construction Industry’.

Pre-insolvency advisors
The relatively recent advent of pre-insolvency advisors has undoubtedly fuelled an increase in illegal phoenix activity in Australia.

Whilst sometimes touted as a ‘guardian’ against insolvency, many are unqualified and trawl the Australian Securities and Investment Commission’s (ASIC) winding up application notices, preying on directors desperate to find a way out of the company’s financial difficulties.  Debtors all too often find themselves in situations where they incur further debts, in the form of substantial pre-insolvency advisor fees, to ‘rebuild’ their company.  In some circumstances this leads to a commercial resolution with creditors that avoids a formal insolvency, however, in many cases, the advice results in illegal phoenix activity.

Read the full article here.

[1] Chorus from ‘We Didn’t Start the Fire’ by Billy Joel, from the Storm Front Album, released 1989.
[2] Phoenix activity: sizing the problem and matching solutions, commissioned by Fair Work Australia (read the report at: http://bit.ly/2e1NNqo).
[3] Ibid.
[4] http://www.aph.gov.au/…/Report/ – ASIC, Submission 11, p. 26.

 

Keep reading

...
OffshoreAlert – Marbella – 19-21 June 2024
We are excited to that our sponsors Grant Thornton UK LLP, Kevin Hellard and Colin Diss are attending and sponsoring OffshoreAlert Marbella! Get ready to experience an unforgettable blend of business and pleasure at OffshoreAlert Marbella 2024! Set against the stunning backdrop of the Kempinski Hotel Bahía in Estepona, Spain, this premier event will take place from June 19-21. Join us to
Read
...
‘Project Prevenirea și Perturbarea’ (Project Prevent & Disrupt (PSP)), Press Release, STOP THE TRAFFIK
With funding from the UK Home Office and British Embassy Bucharest, as well as the International Fraud Group, STOP THE TRAFFIK (STT) launches ‘Project Prevenirea și Perturbarea’ (Project Prevent & Disrupt (PSP)), a programme aiming to disrupt sexual exploitation between Romania and the UK. Right now, the Romania to UK route is heavily run by
Read
...
IFG Flagship Fraud Conference. At the Epicenter! Hong Kong, 25th April 2024!
We were delighted at the success of our Spring Conference which was hosted in Hong Kong by Mishcon de Reya LLP in association with Karas So LLP at the Asia Society. A Welcome Address was given by our IFG Chairman Gary Miller and Kevin So, Partner at Karas So LLP which then followed Ken Peng as our Keynote speaker. We had four great panels
Read
...
Black Swan free-standing orders available in Cyprus!
Introduction ‘Black Swan’ freestanding injunctions in aid of foreign substantive proceedings, have been available in the BVI since 2010, making the BVI a very appealing jurisdiction for claimants seeking to safeguard their interests. However, in May 2020 the Eastern Caribbean Court of Appeal in Broad Idea International Limited v Convoy Collateral Limited BVIHCMAP2019/0026, directly overruled Black Swan. Then,
Read