The Main Difference Between Legal and Illegal Activity
Added on -2020-02-18
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Running Head: Law 1Law
Law2Part AA1: phoenix activity is the activity which is completely based on the idea of the second company, and in this owner of the business transfers the assets of the indebted company to the new company. New company is incorporated from the ashes of the indebted company, and this new company involves similar business and owners. There are two types of phoenix activity that is legal phoenix activity and illegal phoenix activity. Legal phoenix activity includes good intention of the business controller, because controller of the business transfers the assets of the business for rescuing the business which is not possible with the old entity. In this controller does not intend to cheat the creditors and government. However, things are completely different in illegal phoenix activity. It includes the transfer of business assets from indebted company to the newly incorporated company for the purpose of avoiding the payment of creditors and government. In this controller intends to cheat the creditors, employees, and government. The main difference between legal and illegal activity is that in legal phoenix activity decision ofthe controller does not detriment the interest of other stakeholders, but in case of illegal phoenix activity decision of the controller detriment the interest of the creditors (ASIC, 2013). A2: if phoenix activity is conducted by controller with good intention then this activity is considered beneficial for the society because it provide option related to revaluation of the assets.The main purpose of illegal phoenix activity is to defrauding the creditors and other stakeholdersof the company. In other words, illegal phoenix activity includes the transfer of business assets
Law3from the indebted company to the new company with the intention of avoiding the payments of the business. Directors of the business take shield of the phoenix activity for the purpose of defrauding the creditors by not paying their due amounts, governments by not paying the revenue, and employees by not paying their entitlement. This activity not only affects the creditors and other stakeholders related to the company but also affects the society. Complete society is affected by the phoenix activity, because funds which are allocated for society such as funds contributed in roads, hospitals, schools, etc. are deprived by the organization engaged in phoenix activity. Therefore, Phoenix activity cannot be beneficial for society and reasons of this conclusion are stated below: Company obtains unfair competitive advantage over their competitors.Company fail to fulfill their obligations related to statutory requirements. Company fails to pay entitlements and wages to the workers and employees.Company does not pay the amount due to suppliers and creditors. Various actions and measures are taken by the company for resolving the issue related to the phoenix activity (ASIC, 2016). A3: there are number of reasons for which business controller engaged in this activity and these reasons varied as per the intention of the parties. However, the most important reason of this
Law4activity is to ensure the simple winding up process of the company instead of lengthy process of deregistering the company through ASIC. As stated above purpose of this activity varied as per the intention of the controller such as if intention of the controller is illegal then controller engaged in this activity for defrauding their creditors. If intention of the controller is legal then controller engaged in this activity for restructuring the business. It must be noted that some other purpose of this activity are also there, and these purposes are stated below: Phoenix activity helps in reducing the cost related to the liquidation and make it faster.Phoenix activity makes this procedure simpler.For restructuring the business of the company.Provide opportunity to the liquidator for conducting the investigation at earlier stage (Mccoy, 2012). A4: this activity provides various benefits to the directors and other officers of the organization. As directors and other controllers able to incorporate new company without paying the amount of debt incurred in old company. In this activity controller of the business carried the business of the old company in the new company, without accepting the liabilities of the old company. In other words, business assets related to the old company are transferred to the newly incorporated company, but liabilities of the old company are not transferred to this new company. In other words, controllers of the business carried their business without discharging the liabilities incurred by them in the old company.
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