Corporate Law Report: Analysis of Phoenixing Activities in Australia

This report delves into the issue of phoenixing within the context of Australian corporate law, drawing upon the Black Economy Taskforce Final Report (October 2017) as a primary source. It examines the definition of the black economy and phoenixing, the estimated financial impact of phoenixing on the Australian economy, and the industries most susceptible to this practice, particularly the building and construction sectors. The report explores the difficulties regulators face in combating phoenixing, identifying warning signs and potential solutions. Furthermore, it reviews the recommendations of the Taskforce, including proposals for enhanced detection, disruption, and enforcement, such as the Director Identification Number (DIN) and increased information sharing between regulatory bodies. The report also considers the role of directors, creditors, and employees, and outlines measures aimed at preventing and addressing illegal phoenix activity, with a focus on protecting stakeholders and maintaining confidence in corporate regulations. The analysis includes discussions on the Treasury Laws Amendment and Fair Work Amendment Bills.

Running head: CORPORATE LAW
CORPORATE LAW
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Author Note

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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.

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Prevalence of 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. The
activities of phoenixing was seen as being discussed in the case Australian Securities and
Investment Commission v Somerville & ors [2009]. Phoenixing involves the assets transfer
intentionlly from one indebted company to a new company for avoiding to pay the creditors, tax
or employee entitlements. 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 reduced. Further, business operators becoming insolvent in a repeated
and intentional way are cheating the trade creditors and the employees and undercut the
legitimate operators.
As per Construction, Forestry, Mining and Energy Union and Australian Taxation Office
activities of phoenixing can be seen as being prevalent mostly in industries in where a large
workforce of their semi-skilled or unskilled workforce are present and where costs for labour are
not seen as significant for business operation. According to feedbacks of stakeholders it has
been indicated that activity of phoenixing has been mostly prevalent in medium-to-high risk
industry of building and construction. most common reason found for high level of prevalence
of activities of phoenixing in building and construction industries is difficulty in identification
of directors or associates or ‘controlling minds’ of directors who might be seen as being
involved in multiple companies practising phoenixing. In building and construction industries
and labour hire industries phoenixing can be seen as a problematic issue. To pursue entities
practising phoenixing regulators are often seen as facing difficulties as re is presence of an

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entire industry which can be seen as supporting activities of phoenixing. Although re had been
multiple efforts by regulators and regulatory agencies as being pursing entities in phoenixing
activities, yet re have been no stopping activities of phoenixing.
Difficulties of regulators in pursuing phoenix entities
In building and construction industries and labour hire industries phoenixing can be seen
as a problematic issue. To pursue entities practising phoenixing regulators are often seen facing
difficulties as re is presence of an entire industry which supporting activities of phoenixing.
Although re had been multiple efforts by regulators and regulatory agencies as being pursing
entities in phoenixing activities, yet re have been no stopping activities of phoenixing. Reason
for same can partly be discussed as difficulties in identification of directors and controlling
minds who are involved in many of companies engaged in activities of phoenixing and then
taking actions against them.
True power which control the company is required for combating activities relating to
phoenix. More often than not controlling power does not lie in hands of directors. Many times
regulators have to look for contracts of management, powers of attorney or any or similar
instruments for determination for company’s real owner or controlling mind. As there had been
no modelling for a precise structure for specific condition for the illegal phoenix activities as
there are particular conditions present for guiding the regulators for determining certainty of the
activities. These activities characterization are impossible to be determined by the internal
factors because of the failure of any documentary evidence from the advisors.

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Sources assisting in early identification of phoenixing
The early warning signs that could assist in early identification of activities of
phoenixing are- information that financial institutions have, insolvency industry experts,
superannuation funds, credit reporting agencies, third-party risk management in private sector
and regulatory databases and trade unions with regard to companies having potential as being
high-risk, reporting guidelines of improved suspicious matters for financial institutions and SG
non-compliance. According to stakeholders rich sources of information are kept by financial
institutions that regulatory authorities do not currently have access to. banks are required as
being having obligation as being reporting to authorities about any suspicious transaction, as y
can be seen having security over assets moved from one entity to or and in accordance can be
seen to have knowledge about shifting of assets. Further, insolvency industry experts, trade
unions and credit reporting agencies might be seen as having information about high-risk
phoenix operators. It could be observed that non-payment of payroll tax and Work-Cover
premiums might also be a source of early warning.
Proposals identified in report
In report re had been many recommendations proposed by task force - superannuation
early flag; extension of regime of penalties of promoter to ‘guiding minds’; new offences;
enforcing in recovering debts (Static. Treasury, 2017).
There were a number of additional measures recommended by task force in report. This
recommendations were- should be expertise practiced in monitoring of taxation superannuation
and or kinds of debts that could potentially be helping in phoenixing and pursue Tax debt before
company is become Phoenix; regulator’s like ASIC, ATO and FWO should be given
consideration for ability as being designating a collection of entities who are associated with

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Phoenix as a single group for purpose of debt recovering empowerment should be given to
regulators for notifying each of entities in group that identification has been made for recovery
of potential debt purpose; those individuals who are found as being involved in multiple
phoenixes should be made personally liable for debts of entities; resource and scope of
Assetless Administration Fund is required as being significantly increased, for encouraging
liquidators to pursue commercial recovery off assets that had been transferred for on
commercial consideration it is required to review criteria for funding of actions of liquidators
for recovery of assets in circumstances; and comma establishment of an insolvency advisory
panel that should be providing Peer review of Technical matters that that is seen as being
referred by commercial courts in an expedited manner and as being providing opinions about
deliberation of arrangement of moving assets sideways for owners' and related parties' benefits.
There already has been implementation measures started by Government arising from
recommendations given in Taskforce’s Interim Report – for example, Treasury Laws Amendment
(Black Economy Taskforce Measures No. 1) Bill 2018 is seen as being criminalizing production,
supply, use or possession of sales suppression technology and further is seen as extending
reporting system of taxable payments to cleaning and courier businesses that have an ABN. Fair
Work Amendment (Protecting Vulnerable Workers) Bill 2017 was seen as being introducing for
higher penalties for any type of contravention of workplace laws.
Conclusion
Thus from above discussion it can be seen that black economy and phoenixing has been
emerging as an increasing problem in recent times. It is seen that final report of black economy
task force analysing details black economy and its risks and factors and further provides give

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recommendations that should be practiced for handling same. In this essay a detailed analysis has
been done on Black Economy Taskforce Final Report released in October 2017 by Government
of Australia following an initial investigation by Board of Taxation, supported by Treasury and
ATO. Report can be seen as dealing with development of a strategy for combating black
economy. In furtherance essay a research has been done in relation to black economy and
phoenixing. In furtherance this essay answers following questions- estimated costs to
Australian economy of phoenixing, industry in which phoenixing is prevalent mostly,
difficulties in pursuing entities in phoenixing, warning signs for assistance in early
identification of phoenix activities and recommendations identified for addressing increase
illegal phoenix activity in Australia. The term ‘black economy’ refers all people who operate
outside taxation and legal system. Phoenixing is operations of business of an individual structure
of a company who take out all assets and profits earned from business by way of moving m to or
entities and start doing business through as being help of those entities. In estimation it is seen
that phoenixing activity costs to federal government over $600 million per year, and as per Fair
Work Ombudsman report activities of phoenixing was found as being costing an average of
between $1.78 billion and $3.19 billion per year to economy of Australia. For pursuing entities
practising phoenixing regulators are often seen as facing difficulties as re is presence of an entire
industry which can be seen as supporting activities of phoenixing. As per Construction,
Forestry, Mining and Energy Union and Australian Taxation Office activities of phoenixing
can be seen as being prevalent mostly in those industries in which a large workforce of semi-
skilled or unskilled workforce are present and where costs for labour are not seen as significant
for business operation. This essay also states early warning signs as discussed in report-
information that financial institutions have, insolvency industry experts, superannuation funds,

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credit reporting agencies, third-party risk management in private sector and regulatory databases
and trade unions with regard to companies having potential as being high-risk, reporting
guidelines of improved suspicious matters for financial institutions and SG non-compliance.
recommendations mentioned in final report are- superannuation early flag; new offences;
extension of regime of penalties of promoter to ‘guiding minds’; enforcing in recovering
debts.

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Reference
Aph. (2019). Targeting the black economy – Parliament of Australia. Retrieved 4 September
2019, from https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/rp/BudgetReview201819/TargetingBlackEconomy
Australian Bureau of Statistics
Construction, Forestry, Mining and Energy Union and the Australian Taxation Office
Static.treasury. (2017). Black Economy Task Force. Retrieved 4 September 2019, from
https://static.treasury.gov.au/uploads/sites/1/2018/05/Black-Economy-Taskforce_Final-Report.pdf
The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017
Treasury (2019). What is the black economy? | Treasury.gov.au. [online] Treasury.gov.au.
Available at: https://treasury.gov.au/review/black-economy-taskforce/what-is-the-black-
economy
Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018