Understanding the Black Economy and Phoenixing in Corporate Law

Running Head: Corporate Law 5915 0
Corporate Law 5915
9/7/2019
Student’s Name

Corporate Law 5915
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Contents
Question 1........................................................................................................................................1
Question 2........................................................................................................................................2
Question 3........................................................................................................................................3
Question 4........................................................................................................................................4
Question 5........................................................................................................................................6
Question 6........................................................................................................................................6
References........................................................................................................................................9

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Question 1
The black economy can be understood as those people whom authorities know but are
completely out of tax and regulatory system and do not fulfill their tax obligations properly
(Emery, 2018). Such economy refers to untaxable business transactions that nowhere reflect in
the gross domestic product of companies. In other words, this can be stated that the black
economy is a cash-based system where transaction used to record in different accounting books,
generally known as "number two" accounts. It promotes the use of black money that goes hand
in hand. Here this is to inform that some people have also known black economy as underground
economy, shadow economy and the cash economy (Marketbusinessnews, 2019). Different
activities are there which further contributes to the black economy and these includes not
mentioning the acceptance and payment of cash wages in the accounting books, phoenixing,
moonlighting, welfare fraud and so on. In addition to these authorities, money laundering can
also be treated as an activity contributing to the black economy (Treasury, 2019a).
If to understand the meaning of this economy in detail, this is to state that the same has
three characteristics. Firstly, some of its aspects are illegal. For instance, it may include some
goods or services, which are illegal to deal or provide. Secondly, people generally preferred cash
under this economy. Lastly, it involves money laundering to convert illegal payments to a
legitimate form. This kind of economy badly affects the GDP of the nation and overall economic
growth of the same as it prevents taxes from going into the account of government and disturbs
the whole economy while promoting illegal payments and receipts (Amadeo, 2019).
Phoenixing: - This is another term of the black economy. This is a process where people
incorporate the new company that carries the business of old firm which has been wound up to

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avoid tax and other liability (McCouat, 2010). In other words, this is to state that Phoenixing can
be understood as an activity where a firm deliberately reduces its business operations and goes
out of business with the intention to avoid meeting its obligations to customers, government, and
employees. Nevertheless, the same intend to reappear in another guise soon. Usually, big firms
do such activities as they have greater obligations in comparison to small firms. This activity is
usually illegal because of owners of business transfer assets of the old firm to the new one on
unfair market values and leaves debts and other obligation of the old company (Wolters Kluwer,
2019). Different parties are involved in setting up a phoenix company. These parties generally
involve pre-insolvency adviser, dummy directors, valuer, phoenix operators, and liquidators
(Asic, 2019). Here this is required to inform that in addition to illegal phoenix companies, legal
phoenix companies are also there. It means if directors of business try their best to manage one
company genuinely but fail to do so then in such a situation the same can transfer the business of
the old firm to a new company without being engaged in illegal activities. In recent times, a
massive increase in phoenixing has been seen.
Question 2
In Australia, the issue of Phoenixing is increasing day-by-day and bringing adverse
impact to the whole economy of the nation. If to discuss the losses that Phoenixing brings to
Australian economy, this is to state that as per PricewaterhouseCoopers (PwC), the Fair Work
Ombudsman (FWO) and Black economy taskforce the estimated cost of phoenix activity to is
between $1.8 to $3.3 billion annually to government revenue, businesses, and employees.
These losses contain unpaid employees entitlements for instance redundancy pay, unpaid
Salaries, and wages. In conjunction with this, the losses also include unpaid debts to other