The Black Economy and Phoenixing Practices

Running Head: CORPORATE LAW
THE BLACK ECONOMY
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Name of the University
Author’s Note

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The black economy means the type of people who work entirely beyond the system of tax
and regulatory and they are known to the concerned authorities but do not lawfully fulfill their
tax obligations. In other words, practices including understatement of takings, welfare fraud,
sharing economy contractors and not announcing their earnings, moonlighting and phoenixing
constitute the black economy. Activities involving complex interactions with the underground
economy including illegal activities and money laundering also constitute the black economy. In
other words, phoenixing and black economy are the degradation processes of the economy. The
black economy is explained as a whole process of avoiding of tax obligations by the concerned
authorities whereas the practice of phoenixing is a part of the black economy related solely to the
corporations being unlawfully dissolved by its promoters and directors for the avoidance of dues
of creditors and employee entitlements and creating anew company with zero liabilities for such
payments, continuing the process and business of the previously dissolved company. Such
practices are the illegal activities performed by the people for their own advantage, cornering the
benefits of the other people including the government and the essential services required for the
benefit of the country as a whole. Therefore, the black economy as well as the phoenixing
practices are both illegal and unlawful practices hindering the growth and development of the
country along with the violations of business ethics and political obligations of the people
including tax and other provisions.
The black economy underestimates the integrity of Australia’s tax and welfare system
and the honest tax payers are the ones who are penalized. If these activities are allowed to be
continued without check, it can lead to fostering of culture which shall be in complete
participation of the act leading to falling of revenues, tax burdens on other common people with

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lure of higher incentive in these activities. In 2012, Australian Bureau of Statistics estimated that
the cash economy amounted to 1.5% of Australia’s Gross Domestic Product.
While the black economy is deeply embedded in the system, it is still a long standing
problem creating fundamental economic, social and technological changes. This means that the
black economy is deeply rooted within the system and hence, it is a problem of the country as a
whole. Therefore, these problems result in the inefficiency of the changes to be brought in the
aspects of social, economic, business and the technological changes resulting in the deficiency of
services in the essential service streams like hospitals, social aid programs, and so on.
Phoenixing is the activity where the company is deliberately liquidated to avoid payment
to its employees and staff along with its debts, taxes, and creditors. After the liquidation of the
former company, a new company is created to continue the businesses and activities of the
former company without any liabilities related to the former company. In other words,
phoenixing is the process by which the promoters and directors of one company dissolve such
company after the dues of the creditors, employee entitlements including superannuation, and the
non-delivery of goods and services accrues and a new company id subsequently incorporated by
the same promoters and directors under their own names or third party individuals as dummy
individuals, for the purpose of carrying out similar business activities. Such an act is considered
both unlawful as well as illegal activity. Such an act affects business community, employees,
contractors, government and other through :
 Non-payment of employee entitlements.
 Unfair advantage over the competitors.
 Non-payment of the suppliers.

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 Loss of government revenue and increased expenditure on the enforcement activities.
 Non-compliance of regulatory obligations.
The activity of phoenixing affects all the people within its parameters. Such activities
launders money into personal funds resulting in the deprivation of funds from essential services
like hospitals, roads, education and other essential services. However, such activities should be
identified and offenders should be prosecuted to the full applicability of law.
In a report published in June 2012 by PwC, the total cost excluding the unpaid
Superannuation was approximately 1.79$ billion to 3.19$ billion every year. However, the report
further details the annual cost of unpaid wages and employee entitlements amounting to 655$
billion, result of phoenix companies failing to pay debts or non-delivery of goods and services
amounting to 1.93$ billion, and 610$ billion for unpaid taxes under government revenue.
The Cole Royal Commission has found out that there is a drastic and significant practice
of phoenixing in the building and construction industry. Significant incidents can be seen in the
eastern states. The Commission has explained following factors responsible for the Building and
Construction Industry’s vulnerability into the phoenixing activity:
 The work is based on projects.
 Competition and its pressure.
 Problems related to the flow of cash.
 Lack of administrative skills.
 Contractors have a limited base for assets.
Virtually, it is impossible to identify a phoenix company from the successor company.
However, the characteristics of the phoenix company is observed from the external conduct of