Corporate Law Assignment || Phoenix Activity - HI6027
Added on 2020-03-02
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PHOENIX ACTIVITY2ContentsPart A...............................................................................................................................................3Question 1....................................................................................................................................3Question 2....................................................................................................................................3Question 3....................................................................................................................................4Question 4....................................................................................................................................4Question 5....................................................................................................................................5Question 6....................................................................................................................................6Question 7....................................................................................................................................7Part B...............................................................................................................................................8Question 8....................................................................................................................................8Question 9..................................................................................................................................10References......................................................................................................................................12
PHOENIX ACTIVITY3Part AQuestion 1Phoenix refers to the mythical creature which is reborn from the ashes of its own old body upon death. Going by the analogy, phoenix activity describes such a new business which is reborn from the ashes of its defunct business. This contains a range of different activities and practices; though, it mostly contains a director cycle production business assets from different companies where a deliberate attempt is made towards avoidance of liabilities from the trade creditors and tax (Margret and Peck, 2014). The ASIC, i.e., the Australian Securities and Investment Commission has described phoenix activity as such conduct which meets a particular set criteria. When an entity fails to pay its debts; acts in a way where the unsecured creditors are intentionally denied equal access to the assets of the entity for meeting its outstanding debts; and in a period of one year, a different business is initiated where some or all of the assets of the previous business and the same is controlled by the parties which are related to the directors or management of the previous entity (Taylor David, 2014). Question 2Phoenix activities are not beneficial for the society. This is because it is such an activity, whereby for the benefit of a few, a huge group of people, including different stakeholders are impacted. This is particularly true because such activities are undertaken for fraudulent purpose,
PHOENIX ACTIVITY4where the theme is to be benefited by indulging in activities which harm different people. Society contains the employees and creditors which are majorly harmed as their debts and rightful earnings are never paid in such cases. Further, by costing the nation millions of dollars, the economy is affected, the impact of which is ultimately born by the society. Question 3The purpose of indulging in phoenix activities stems from the fact that it is too easy and lucrative, along with being cheap and largely invisible. By using phoenix activities, the directors or the management of the old company are able to evade their liabilities and continue the business merely by forming a new company, whilst making use of the assets of the old company (Oakes and Clark, 2017). There can always be more than one purpose of indulging in such activities which includes accumulation of debts without having the intention of repaying these debts and even liquidating for the purpose of avoiding the debt repayment. Through the adoption of phoenix activities, the individuals involved in such activities are also able to obtain tax benefits (Australian Government, 2009). Question 4By indulging in phoenix activity, a certain segment of individuals are able to benefit, but the majority looses from such activities. The benefit in case of phoenix activities is to the management and directors of the old company, who form the new company, by using the assets of the old company. This is because they are able to use the assets of the old company in their new company, which saves costs which would have to incur otherwise. Secondly, they are able to evade their liabilities which were born due to the debts of the old company, towards the creditors, tax department and the different stakeholder groups.
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