Corporate Law

RUNNING HEAD: CORPORATE LAW
Corporate Law

CORPORATE LAW
Answer 1
Meaning of Black Economy and Phoenixing
The black economy relates to individuals who work outside of the tax and regulation
scheme or who are known to the authorities but do not disclose their tax commitments
properly. It includes a broad variety of methods, including understatement of receipts,
payment and recognition of books money wages, welfare fraud, and phoenixing (where
companies intentionally liquidate to prevent paying staff and creditors). Consideration must
also be given to complex relationships with illegal operations, including money laundering.
The black economy also damages the economy and society substantially. Black economy
operations undermine confidence in the tax scheme, generate an unfair business atmosphere
that penalizes companies and people doing the correct thing, enables and reinforces
employee’s exploitation, undermines tax revenue, and enables abuse of the welfare system.1
If left unchecked, involvement in the black economy may result in a hazardous
dynamic. It can promote a culture that legitimizes this involvement and promotes it,
stimulating its further development. As revenue drop, those who remain in the formal
economy may face higher tax burdens, giving a higher motivation to move into the shadows.
Australia is not only county that is dealing with the issue of black economy but also by other
Organization for Economic Cooperation and Development Essentially (OECD) countries.
Phoenixing
The concept of phoenix operation centers widely on the idea of a second company,
often freshly integrated, resulting from the ruins of its unsuccessful predecessor where the
controllers and business of the second company are largely the same. It is essential to
remember that both phoenix exercise can be both i.e. lawful and unlawful. There is no
separate definition of phoenix is provided in the Corporation Act 2001. In general, legal
phoenix exercise includes situations where prior operators begin a comparable company if
their prior organization fails to rescue their company.2 Illegal phoenix activity exercise
includes comparable operations, but the aim is to leverage the business type to the detriment
1 Nils Gilman, Jesse Golhammer and Steven Weber, Deviant Globalisation: Black Market Economy in 21st
Century (A&C Black, 2011) 299
2 Helen Anderson, Corporate Law and the Phoenix Company in roman tosmasic (Routledge, 2017) 114
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CORPORATE LAW
of unsecured customers, including staff and tax officials.3 Phoenix exercise can be completely
legal, particularly if the value of the property of the unsuccessful company is retained and the
staff retain their employment and rights. One defines this behavior as ' legal phoenix activity
or company rescue. However, if the returns to creditors and advantages to staff are less, the
continuous resurrection of a company can become difficult even with the best of plans.4 The
behavior becomes unlawful where the directors of the corporation intend to use the inability
of the company as a tool to prevent charging the shareholders of old company (which may
include the staff of the company) what they would otherwise have got if the property of the
company were correctly handled. Illegal Phoenixing has adverse effects on company groups,
suppliers and public through:
 Non-payment of salaries and other rights to staff and vendors,
 Achieving unfair competitive benefits
 Avoiding regulatory responsibilities.
When performed illegally, it is always preferable to be a cheap trick that leaves behind
the bonds, entitlements and navigations of the providers and staff who are essentially
interested in becoming the bright fresh business.
Phoenix activities are the concepts that are basically based on ideas of the company's or a
company's inability and often give birth to the fresh generation.
Answer 2
Estimated Costs to the Australian economy of phoenixing
According to a Pwc study published by the Australian Tax Office (ATO), the Fair
Work Ombudsman (FWO) and the Australian Securities and Investment Commission
(ASIC), a large estimate of $5 billion is being washed out of Australia's economy by
phoenixing or illegally dissolving a business.5 The research, entitled' Economic Impacts of
3 Michelle Welsh and Helen Anderson, The public Enforcement of sanctions against illegal phoenix activity:
scope rational and reform (Federal Law Review, 2016) 201
4 Helen Anderson, Ann O’Connell, Ian Ramsay, Michelle Anne Welsh and Hannah Withers, Profiling Phoenix
Activity:A new Taxonamy (2015) Company and Securities Law Journal 33(2) 133-137
5 Helen Anderson, Ann O’Connell, Ian Ramsay, Michelle Anne Welsh and Hannah Withers, Quantifying
phoenix activity:incidence, cost, enforcement (2015) U of Melbourne Legal Studies Reaserch Paper
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CORPORATE LAW
Potential Illegal Phoenix Activity,' brings phoenixing costs between $2.8 billion and $5.1
billion annually depending on operation between 2015-2016.6 The consulting company works
further to determine the overall cost to the Australian economy, estimating a loss of GDP of
up to $3.5 billion or 0.21 percent of Australian annual GDP.
To combat the issue of phoenixing in Australia, the Treasury Laws Amendment (Combatting
Illegal Pheoxining) Bill 2019 was introduced in Parliament on 13 Feb 2019. In this bill, it was
proposed to give ASIC, ATO as well as liquidators noteworthy new powers that were
designed to help to deal with the issue of phoenix activities and to prosecute responsible
director and person who assist them in such dealings.
Answer 3
Industries in which phoenixing is most prevalent
Building industry faces a lot of phoenixing issues in Australia. According to the study
of the Senate Economic References Committee (SERC), the building company in Australia is
facing a lot of insolvency and vexed phoenixing problems. While indulging in the phoenix
operation, it is usually thought that the liquidating organization will stop paying salaries to
the employees at the same time as it gets up again. Some of the features of the construction
sector that make debt recovery very hard are the subcontracting schemes that are made up of
those vital features removed from all the significant construction projects, where the
contractor's head embarks on the agreements and receives cash from the customer or the
customer. These subcontractors are forced to state that they would pay all the arrears to all
employees under investigation and it was found that all the statements made by the builders
were false or statutory.
As in the case of Asic v Franklin 7, in the situation of Walton Constructions Pty Ltd,
some of the main concerns mentioned are as follows:
The obligations are not impartially and separately released, the builders ' issues are
not correctly defined or clarified, etc. The respondent was assigned by the construction
industry in this situation without informing them of the collapse of the company's situation.
Here it was discovered that many of the t.he employees here were engaged in collecting cash
under the table of which there was no record and this helped the illegal acts of phoenixing.
6 Philip Lipton and Abe Herzberg et all, Understanding Company Law (Thomson Reuters, 2016) 1037
7 (2014) FCAFC 85
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