Black Economy and Phoenixing: An Analysis of the Final Report of the Black Economy Taskforce

Running head: CORPORATE LAW
CORPORATE LAW
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Introduction
A detailed research has been done in present essay in relation to Black Economy
Taskforce Final Report that had been released in 2017 October by Australian Government
following an initial investigation that was conducted by Board of Taxation, and with support of
Treasury and ATO. Report also dealt with strategic development to combat black economy. In
this essay analysis is seen as being done in regard to black economy and phoenixing. Further in
essay following questions have been addressed- estimated cost to Australian economy of
phoenixing, industries in which phoenixing can be seen as prevalent mostly and its reasons with
context to role of directors and or ‘controlling minds’ , difficulties in persuasion of entities
related to phoenixing, warning signs that could assist in early identification of phoenixing
activities and recommendations or proposals that have been identified as being addressing
increase illegal phoenix activity in Australia. The term ‘black economy’ refers towards all
activities being operated outside authority of legal and taxation system. Phoenixing can be
described as business operations of individual structure of a company taking out all assets and
profits earned from business by moving them to or entities and start doing business through as
being help of those entities.
Black Economy
Term ‘black economy’ refers to all people who operate outside legal and taxation system.
Authorities have knowledge about same but their obligations of tax are not reported correctly.
Black economy is consisting of wide range of practices. These practices include undertakings of
statements, welfare frauds, moonlighting, accepting and paying cash wages that are off books,
abstinence of contractors in a sharing economy from declaration of their incomes and

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phoenixing. Phoenixing is operations of business of an individual structure of a company taking
out all assets are profits earned from business by way of moving m to or entities and start doing
business through as being help of those entities. Black economy is also called as cash economy,
shadow economy and underground economy (Treasury, 2019). As per report black economy also
includes complex interactions with illegal activities, like money laundering. According to report
of task force black economy can be seen as a significant Complex and growing economic
problem and a social problem as well. It is believed task force is that problem could have
increased up to 50% since year 2012. With changes in economic technological and social sectors
black economy can be seen as rapidly shifting and evolving and not standing still.
Phoenixing
Phoenixing is the operations of the business of an individual structure of a company who
is seen as taking out all assets and profits earned from business by moving them to some of the
other entities and start doing business through to be help of those entities. Phoenixing involves
the assets transfer intentionlly from one indebted company to a new company for avoiding to pay
the creditors, tax or employee entitlements. The activities of phoenixing was seen as being
discussed in the case Australian Securities and Investment Commission v Somerville & ors
[2009]. Phoenix activities have been emerging and serious problems that undermine the
confidence of the community in the corporate regulations. Taxpayers are bearing the burden of
revenues that have been reduced. Further, business operators becoming insolvent in a repeated
and intentional way is cheating the trade creditors and the employees and undercut the legitimate
operators.

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Estimated cost
In 2012, as per estimations of Australian Bureau of Statistics (ABS), ‘cash economy’ was
seen as accounting for 1.5% of Gross Domestic Product of Australia that would amount to $25
billion in an approximate manner. In final report of Task Force estimate was found out to almost
3% of GDP which was equal to amount $50 billion in year 2015-16. ). In estimation per year, it
can be said that phoenixing activity costs to federal government over $600 million activity
affects businesses adversely in an average of between $0.99 and $1.93 billion. Budget of 2018-
19 are building on se measures and implementing a few recommendations of Taskforce that are
contained in final report, which includes- a limit of $10,000 in an economy-wide manner for
those payments made to businesses for goods and services in cash in effect from 1st July 2019;
an amount of $12.3 million to treasury over five years for managing entire Government
response to Final Report of Task force; an amount of $3.4 million to ATO over four years for
leading of multi-agency of Black Economy Standing Taskforce; $318.5 million over four years
for implementations of strategies for establishment of ‘mobile strike teams’ of ATO and
establishment of a hotline for black economy as being used by public for reporting activities
related to black economy and activities related to phoenixing; an amount of $9.2 million for
development of a ‘Procurement Connected Policy’ that would be requiring for businesses as
being providing a statement of tax compliance from ATO for any tender for procurement
contracts of Government Australia for amount of over $4 million (Aph, 2019). Asper Fair
Work Ombudsman report activities of phoenixing was found costing an average of between
$1.78 billion and $3.19 billion per year to economy of Australia. effect it has on employees
range to an average of $126 million.