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Running Head: Law 1Law
Law2Part AAnswer 1: phoenix activity is considered as the concept which is generated from the idea of the second company, often new company is incorporated. Incorporation of the new company is done from the ashes of the old company. It must be noted in this new company both controllers and business are same as of the old company. Phoenix activity is defined as the incorporation of a new company for takeover the business conducted by the old company which becomes insolvent. The main aim of phoenix activity is to restructure the company which faces genuine failure and liquidation. Phoenix activity is divided among two categories that are legal and illegal. Legal phoenix activity is conducted when controller of the business incorporate new company for conducting the business because it is not possible for the controller to rescue the business of the previous entity. On the other hand, illegal phoenix activity is conducted when owner of the business incorporate new company because it is not possible for controller to rescue the business of the previous entity, but intention of the controller is not good and decision taken by the controller detriment the interest of the creditors, employees, and government. For example, directors of the company start new business for the purpose of avoiding the payments due to the creditors, employees, and government authorities1. Answer 2: legal phoenix activity is considered as beneficial activity for the society, but if phoenix activity is conducted in illegal way then it is not considered beneficial for the society. Phoenix activity is illegal in nature when new company is incorporated by the controller of the company, but with the intention of defrauding the stakeholders of the company. In other words, 1 ASIC, (2013), Small business-illegal phoenix activity<http://asic.gov.au/for-business/your-business/small-business/compliance-for-small-business/small-business-illegal-phoenix-activity/>, Accessed on 31st August 2017.
Law3company is liquidated for avoiding the payment due to creditors and government. This activity effect not only the creditors, but also the employees, contractors, government and environment. Following are some ways through which above stated stakeholders are affected:Company fails to make payment in lieu of wages, entitlements, and superannuation funds.Unfair competitive advantage is gained by the company over their competitors and other businesses. Payment related to the suppliers is not made by the company.Company fails to pay the revenue and any other amount due to the government, and extramonitoring and enforcement costs is also imposed on the government by the company. Business continuously fails to meet the regulatory obligations. Not only stakeholders of the company are affected by illegal phoenix activity but complete society is affected by this activity. Funds available for society such as funds contributed in roads,hospitals, schools, etc. are deprived by the business entity engaged in such activity. Government adopts various measures for preventing any such activity such as heavy penalties are imposed on the offenders2. Answer 3: Phoenix activity are conducted for various reasons, and the most important reason for conducting this activity is to provide procedure for wind up the company in simple manner, rather than adopting lengthy process of deregistering the company through ASIC. It must be noted that this purpose allowed the employees of the company to get assistance under GEERS for claiming their entitlement from the company. This purpose only helps in preventing some 2 ASIC, (2016). Illegal phoenix activity, <http://asic.gov.au/about-asic/contact-us/how-to-complain/illegal-phoenix-activity/>, Accessed on 31st August 2017.
Law4disadvantages of this activity, and not eliminates the complete concept. Some other purposes of this activity are stated below:It helps in reducing the cost of liquidation, and makes the procedure simpler.Phoenix activity speed up the procedure by the removing the requirement of lodging application.Opportunity for restructuring the business is given to the directors of the company.Opportunity for conduct investigation at earlier stage for avoiding future consequences is given to the liquidator3. Answer 4: phoenix activity mainly provides benefit to the directors and other controllers of the business by incorporating the new company without discharging the liabilities of old company. New incorporated company adopts the business of the old company owned by controller, but did not adopt the liabilities. Assets belong to old co. are transferred to the new company without transferring the liabilities and controllers does not pay penny to the creditors, employees, and society. Therefore, this activity is beneficial for controllers of the business, but it is not beneficial for the unsecured creditors, employees, government, and society because of the following reasons:Non-payment of wages to the employees of the company. Fails to pay amount due to creditors.Business detriment the fund contributed to the society, etc4. 3 Mccoy, O. (2012). Phoenix Fever, < https://www.claytonutz.com/knowledge/2012/september/phoenix-fever>, Accessed on 31st August 2017. 4 Henderson, A. (2014). Phoenix activity recommendations on detection, disruption and enforcement, < http://law.unimelb.edu.au/__data/assets/pdf_file/0020/2274131/Phoenix-Activity-Recommendations-on-Detection-Disruption-and-Enforcement.pdf>, Accessed on 4th September 2017.
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