Corporate Law: Black Economy and Phoenixing Activities in Australia

This document discusses the concept of black economy and phoenixing activities in Australia. It explains the definition of black economy and the various practices involved in it. It also explores the concept of phoenixing and its types. The document further discusses the estimated cost of phoenixing in Australia and the industries in which it is most prevalent. It highlights the reasons why these industries face this scenario and the difficulties faced by regulators in dealing with phoenixing. Additionally, it provides information on the director's duty and the sources of early warning signs for illegal phoenixing. Finally, it offers recommendations to overcome these activities and prevent their negative impact on the economy.

Running Head: CORPORATE LAW 0
BLACK ECONOMY TASKFORCE REPORT
AUSTRALIA
[DATE]
[Company name]
[Company address]

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Question 1
Black economy
According to the final report made by the Black economy taskforce, the term black
economy refers to those people who does their duties completely outside the domains of taxing
and regulatory systems. It is comprised up of a huge number of practices such as not reporting or
under reporting of incomes, fraud in the welfare, underpayment of wages, deliberately not paying
the salaries to the employees and the creditors, fraud in GST, phoenixing, fraud in ABN i.e.
Australian Business Number, committing illegal activities etc. (treasury, 2017)
Basically the term black economy can be defined as those acts which is against the
economy, laws and legislations of the nation. Mostly people gets indulged or involved in these
activities just to avoid and have control over the payment of taxes (gov, The whole-of-
government black economy action plan, 2016). There are a number of activities which are not
examined by the taskforce report under this head and they are productions which are done for
one’s own use, something done only for the satisfying the hobbies etc. Thus to sum up it can be
said that black economy is a very complex and divergent process which increases the social and
economic problems (Ayoub, 2018-19).
Phoenixing
Phoenix is a very exclusive tern which is basically used for the commercial entities and
emerges when the earlier insolvent one collapses. In short it can be very well described as that
successor which takes birth in the middle or from the ashes and demises of the predecessor or the
failed companies. Australian Securities and Investment Commission in one of its study has
highlighted three types of phoenix operators and those are first the innocent phoenix operators.

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In this case the directors of the company tries to overcome or resolve the insolvency before it
gets collapsed (Sewell & Kettle, 2018). Second is hazard occurred in the occupational area, here
the directors may be at option to start up with the new business or the same industry from the
older one. Last is the careerist offenders here the operators engage in the phoenix activities just
to avoid detection. Phoenixing may be legal as well as illegal. Illegal phoenix activity are those
where the company is just created to continue with the business of a company who is just trying
to avoid the paying of tax, debts to the creditors or the employees (Bradstock, 2018).
Question 2
The estimated cost of phoenixing in Australia
Phoenix is determined as the act where an entity knowingly shuts down the company for
avoiding the costs i.e. wage payments to the employees, taxes and other debts to the concerned
government. So the main aim of its taskforce is to reduce those impacts which are caused due to
illegal phoenixing acts. These illegal acts has a very significant impact throughout the Australian
community (Anderson, Ramsay, & Welsh, Illegal phoenix activity: Quantifying its incidence and
cost, 2016).
The taskforce of the federal government working against the illegal phoenixing activities
has revealed that in Australia today the cost of these illegal activities has exceeded roughly over
55 billion annually. According to a report made by PwC the taxation officer of Australia these
activities are wiping up the entire economy of Australia. Further this report also determined that
illegal phoenix acts leads to losing of the victims entitlements (Anderson, Hedges, Ramsay, &
Welsh, 2017).

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Question 3
Industry in which phoenixing is most prevalent
According to a report made by the taskforce of Phoenix and its members such as ATO’s
ASIC i.e. Australian Securities and Investment Commissions, fair work ombudsman, and
PricewaterhouseCoopers i.e. PwC, revealed that the illegal phoenixing activities occur mostly in
the building, construction, hiring of labors, payroll services, security services, cafes and
restaurants and childcare services. In Australia it can also be seen in the mining, agricultural,
horticultural and transporting services (Coggins, Teng, & Rameezdeen, 2016).
Being involved in the phoenixing activities it is mostly believed that the payments of
wages to the employees and other creditors will be avoided at the highest while getting up again
form the ashes of the older ones. The construction and building industry faces a lot of phoenixing
activities as the workers here gets ready to work on the temporary basis due to their minimal
knowledge etc. (Ketchell, 2015)
Reasons why this industry faces this scenario
As the employees working here has a very low educational skills, so they get ready to
work at very low prices and on the temporary basis so that to earn living for themselves and for
their families. This can be very well seen in the case study of Joe who tries to save his building
company which was falling. He was the director of the Sample homes Ply Ltd a building
company and has knowledge about the trouble so being faced by his company. Then he went to
his accountant to take his advice and take steps which can be taken on the urgent basis so that to
prevent the company from collapsing (Richards, 2018).
Then just to safeguard the company they took all the unreasonable steps like removing
off the assets of the company dishonestly and sold them and hence were left with no means to

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pay off the salaries and debts to the employees and other creditors. Hence was found to be
indulged in illegal phoenixing activities.
Question 4
Difficulties faced by the regulators while following phoenixing
It is noted that the illegal phoenixing activities involves the transfer of the assets between
the companies related to the creditors who are intentionally dodged. The reports made by the
Australian government suggested that there were numerous significant problems which were
been faced by the regulatory body while dealing with the phoenixing activity.
ATO i.e. the Australian Taxation Officer mainly focused on the fact that phoenix
activities mostly operates on those sectors of the market upon which the regulators cannot afford
risk of being collapsed. While ASIC also discovered the same acts and conducts which may lead
to illegal phoenixing activities (gov, Illegal phoenix activity and other misconduct, 2019).
Though the continuous growth is seen the economies of Australia but the need of the
directors and their duties are still not changing and especially in the areas where the businesses
are undergoing or facing the insolvent situations. In Australia it has become a trend that
phoenixing activities will basically be concerned with those acts of the directors individually
who are interested mainly in transforming the company’s possession which is undergoing debts
and troubling situation and while framing the new ones they become their directors directly
(KEATING , 2015). A company is said to be operated by the name of its directors and the other
managing team. So they would be held liable for all the existing operations within the
organization. A director is said to violate his duty if is found indulged in a variety of phoenix
activities (gov, Illegal phoenix activity and other misconduct, 2019).

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Director’s Duty
It is the directors who helps to overcome mostly all the problems and find out a relevant
solution for all the situations and crises raised on the temporary or permanent basis.
Helps in fixing the quotes in relation to emerging phoenix activities.
Leads a helping hand in getting rid form those histories of the business to repeat itself and
give birth to the black economy (McKenzie, 2017).
Directors are expected to act with a very good intention and get indulged into those
activities which can be held beneficiary for the welfare of their companies. They must be
completely transparent with those things which are done for the betterment of the organization.
The above are some duties which are imposed upon the directors so that they may serve for
achieving the best outcome for the company. The negligence may not necessarily be emerged
from always be the result of the breaching of the duties of the directors (McKenzie, 2017).
In accordance with sec 181 of the Corporation act, it is the duty of the directors to which
must be done with good faith and mainly for the betterment or the interest of the company and
also for a proper purpose. It is the duty of the director to examine all the needed facts properly
prior to taking up of a decision and this goes same for the situation however the difficult
situation may be. Whereas section 182(1) highlights the position of the directors which can be
misused in breaching any of the acts which are not done in good faith and for serving a proper
purpose (Roach, 2010).

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Question 5
Sources of Early warning Signs
The Australian Taxation Officers who are considered as head of the phoenix taskforce
Australia are recently found to work on the methods which are used in identifying and settling
down upon all the individuals who are being indulged in the activities which are said to be
included in illegal phoenixing just to protect the business and workers which are honest in
nature. Thus all the warning signs for the contractors or the employees who are indulged in
illegal phoenixing operations are as follows:
While not receiving a pay slip (Coggins, Teng, & Rameezdeen, 2016).
The Australian Business Number and the name of the company changes leaving behind
the phone number and the address unchanged.
Delays in giving up of salaries and also the amount given as salary is less than the one
which was the expected or the minimums salary.
The employer’s name was different from the one which was acknowledged to the
employee at the time of hiring (Richards, 2018).
Whereas the warning signs for the business owners may be while being offered with
lower quotes as compared to that of the markets or the competitors. Directors found to be
involved in the liquidated entities etc. Therefore for getting rid from all these activities the
victims are required to visit ATO, Fair Work Ombudsman and ASIC (Ayoub, 2018-19).
Question 6
Recommendations
The following steps can be included in overcoming these phoenixing activities:

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New and transparent natured phoenix officer must be appointed who can figure out all the
activities facilitating illegal phoenixing.
Just for avoiding the personal liability the must not be allowed to resign or backdate their
duties.
Those directors must be stopped from resigning the company who are the only directors
of the company so that the chair is not left empty.
Huge penalties and strict actions must be imposed on the once who are indulged in the
illegal phoenixing activities.
All the relevant information which can protect the company must be disclosed at the
highest priority to the ATO.
To prevent the phoenix activities all the necessary elements such as budget and the
purpose must be properly sorted and their aim must be to prevent, detect and prosecute all the
illegal acts etc.
There are a number of steps or recommendations which may be taken into consideration
while dealing with the omission of the illegal phoenixing activities. They may lead a very strong
base while dealing with the corporate world and it also prevent them from getting bended
towards the illegal acts. Illegal phoenixing acts are very dangerous or risky for the economy of a
nation it may hamper it and hence give birth to black economy which tends to reduce the level of
developments of the nations on a large scale.

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References
Anderson, H. L., Hedges, J., Ramsay, I., & Welsh, M. A. (2017). Illegal Phoenix Activity: Is
a'Phoenix Prohibition'the Solution? Company and Securities Law Journal, 35(3), 184-
203.
Anderson, H. L., Ramsay, I., & Welsh, M. A. (2016). Illegal phoenix activity: Quantifying its
incidence and cost. Insolvency Law Journal,, 24(1), 95-110.
Ayoub, J. (2018-19). Targeting the black economy. Retrieved from The Black Economy
Taskforce: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/rp/BudgetReview201819/TargetingBlackEconomy
Bradstock, A. (2018). What are Phoenix Companies and are they Legal? Retrieved from
Company Debt:
https://www.companydebt.com/company-rescue-solutions/pre-packs/what-are-phoenix-
companies-and-are-they-legal/
Coggins, J., Teng, B., & Rameezdeen, R. (2016). Construction insolvency in Australia: reining in
the beast. Construction Economics and Building, 16(3), 39-56.
gov. (2016, 12). The whole-of-government black economy action plan. Retrieved from Australian
Taxation Office: https://www.ato.gov.au/General/Black-economy/The-whole-of-
government-black-economy-action-plan/
gov. (2019). Illegal phoenix activity and other misconduct. Retrieved from Parliament of
Australia:
https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/
Insolvency_construction/Report/c05

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KEATING , E. (2015, 09 20). Lack of rules and data about phoenix activity compounds the
problem: Research. Retrieved from Business Advice:
https://www.smartcompany.com.au/business-advice/legal/lack-of-rules-and-data-about-
phoenix-activity-compounds-the-problem-research/
Ketchell, M. (2015, 06 12). Is illegal phoenix activity rife among construction companies?
Retrieved from Academic rigour, journalistic flair: https://theconversation.com/is-illegal-
phoenix-activity-rife-among-construction-companies-43111
McKenzie, B. (2017). Duties and liabilities of Directors of Australian Company. Retrieved from
Director's Duties:
https://www.bakermckenzie.com/-/media/files/locations/australia/bk_australia_dutiesliabi
litiesofdirectors_dec17.pdf?la=en
Richards, D. (2018). Fight of the phoenix. Company Director, 34(8), 48.
Roach, M. (2010). Combating the Phoenix Phenomenon: An Analysis of International. Retrieved
from eJournal of Tax Research: http://www.austlii.edu.au/au/journals/eJTR/2010/6.pdf
Sewell, & Kettle. (2018, 11 27). What is phoenix activity and how does the law (attempt to)
regulate it? Retrieved from Swell & Kettle: https://sklawyers.com.au/what-phoenix-
activity/
treasury. (2017). Black Economy Taskforce Final Report October 2017. Retrieved from
Commonwealth of Australia: https://static.treasury.gov.au/uploads/sites/1/2018/05/Black-
Economy-Taskforce_Final-Report.pdf