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BULAW5915 Corporate Law - Phoenix Activity in Australia

   

Added on  2019-10-31

13 Pages3321 Words190 Views
Running head: PHOENIX ACTIVITY IN AUSTRALIAPhoenix Activity in Australia[Student Name:]Federation University AustraliaBULAW5915: Corporate Law

PHOENIX ACTIVITY IN AUSTRALIA 1Table of Contents1.The definition of ‘phoenix activity’....................................................................................12.Societal benefits of Phoenix Activity.................................................................................23.The objective of phoenix activity.......................................................................................24.Beneficiaries and losers of phoenix activity.......................................................................25.Statutory prohibitions for phoenix activity.........................................................................36.Statutory breach by phoenix activity..................................................................................37.Case study on phoenix activity...........................................................................................48.The impact of prohibiting Phoenix activity........................................................................59.Structure of a Phoenix offence or prohibition....................................................................8References................................................................................................................................10

PHOENIX ACTIVITY IN AUSTRALIA 2Phoenix Activity in AustraliaPart A1.The definition of ‘phoenix activity’Theoretically, phoenix activity stems from the idea of a new organisation ‘rising from theashes’ of a previously wound up or liquidated company; the new company maintains thesame nature of business and controllers[ CITATION And14 \l 2057 ]. Phoenix activity can belegal or illegal; where an organisation fails but on resurrection maintains its worth, employeeentitlements and other financial obligations to creditors then this is considered as legalPhoenix activity. However, engaging in calculated, and at times predictably repeated,liquidation in order to evade tax and other financial obligations is considered illegal phoenixactivity[ CITATION Fai12 \l 2057 ]. As such, whereas not all Phoenix companies arefraudulent, those formed with the intent to deceive employees and creditors are categorised asfraudulent and as such engage in illegal phoenix activity[ CITATION Mar15 \l 2057 ].2.Societal benefits of Phoenix ActivityPhoenix activity can be socially beneficial where a company is able to genuinely reinventitself after failure. The benefit arises from the maintenance of employment, and serviceswhich in themselves contribute to the general economic growth of the society. Further,phoenix activity, also known as ‘phoenixing’, allows for efficiency in that the largetransactions costs that would accompany an insolvency process are mitigated as a business’core structure; customers, employees, suppliers and assets, are maintained[ CITATIONRoa10 \l 2057 ]. However, where the element of deceit to evade taxes and other financialobligations comes into play; Phoenix activity becomes a costly socio-economic affair. FairWork Australia in a recent report estimates that illegal phoenix activity costs the economywell over three billion dollars annually[ CITATION ASI13 \l 2057 ].

PHOENIX ACTIVITY IN AUSTRALIA 33.The objective of phoenix activityWith regard to purpose, there is a dearth of literature exploring the underlying motivations ofphoenix activity; it may be driven by the desire to protect a particular class of stakeholders,the desire to gain competitive advantage or the need to survive[ CITATION Mat15 \l 2057 ].Legitimate Phoenix activity serves to allow for the continuity of responsibly managedorganisations after experiencing genuine business failure. On the other, illegal phoenixactivity merely serves as a means of generating personal wealth or creating an unfaircompetitive advantage for fraudulent directors and business controllers[ CITATION Aus09 \l2057 ]. 4.Beneficiaries and losers of phoenix activityPhoenix activity affects various stakeholders within the industry. It affects the directors,shareholders, the business community or industry in question, employees, creditors, suppliersor contractors, the government and the economy at large[ CITATION ATO17 \l 2057 ].Directors who engage in phoenix activity benefit by way of gaining a competitive advantageover other organisations within the same industry, this is a creation of wealth. However, employees and creditors are likely to lose the most where Phoenix activity occurs;employees can lose employment, wages as well as other benefits such as superannuationwhich may have accrued prior to liquidation of the company. Creditors, on the other hand, arelikely to be left with a company that lacks assets which can be used to recover what is owedto them. Additionally, governments lose a source of revenue with which to drivedevelopment in the community by way of service delivery; that is, construction andmaintenance of hospitals, roads, education facilities among others.Further, as previously mentioned, phoenix activity is costly to the Australian economy.Reports estimate approximately three billion is lost through Phoenix activity annually; this isby way of tax evasion as well as lost wages which contribute to a loss of

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