Phoenix Activity: Regulating Fraudulent Use of the Corporate Form

Project Overview

Fraudulent phoenix activity is of great concern to Australian policymakers. It occurs where there is the deliberate liquidation of a company to avoid paying debts but the business continues through another company, and in corporate groups through the liquidation of undercapitalised subsidiaries and transfer of business to other companies in the group. This behaviour causes huge losses in taxation revenue and large financial losses for employees and unsecured creditors. To strengthen Australia's economic fabric, this project aims to determine the optimal method of dealing with fraudulent phoenix activity through a thorough examination of all of its aspects in Australia and by a comparative analysis of international responses.

Current Status

The Regulating Fraudulent Phoenix Activity project is currently in its third and final stage: making recommendations to deal with harmful phoenix activity and engaging with stakeholders to assist in implementing those recommendations. The report containing the project’s final recommendations was released in February 2017.

Impact Statement

Since the launch of the Phoenix Project, the Phoenix Research Team has been collaborating with key stakeholders. At the request of the Australian Taxation Office (ATO), Professor Helen Anderson represented the team and presented findings at several Inter-Agency Phoenix Forum (IAPF) meetings in 2014 and 2015. This forum is hosted by the ATO, and its members include the Australian Securities and Investments Commission, the Fair Work Ombudsman and NSW and Victorian state revenue offices. Each has contributed to our work through the provision of data and information during interviews.

Professor Anderson was also invited to be a panel member in the ATO’s educational video on phoenix activity in 2015. In addition, in 2015 Associate Professor Michelle Welsh spoke at a Senate Economics References Committee (SERC) inquiry into insolvency in the Australian construction industry, and Professor Anderson appeared before the Productivity Commission Inquiry on Business Set-up, Transfer and Closure. Professor Anderson was also an invited speaker at the ARITA State Conference (Victoria/Tasmania).

Several of the Phoenix Research Team’s key recommendations made in submissions have been supported in whole or in part by the Productivity Commission and the SERC. These recommendations include the introduction of a Director Identity Number and the need for increased identity checks for directors at the time of incorporation.

The five categories of phoenix identified by the Phoenix Research Team in its first major report Defining and Profiling Phoenix Activity have been positively received. The ATO referred to the report in its submission to the SERC and it was the subject of questions by the committee to Associate Professor Welsh.  The report has also been relied upon by the Australian Restructuring Insolvency and Turnaround Association (ARITA). The categories assist the understanding of legal and illegal phoenix activity and of the need to differentiate the treatment of phoenix activity depending on the circumstances of its occurrence. The team’s second report, Quantifying Phoenix Activity: Incidence, Cost, Enforcement has highlighted the current difficulties in obtaining accurate or meaningful statistics about phoenix activity. The team’s third and final report, Phoenix Activity: Recommendations on Detection, Disruption and Enforcement, puts forward 32 recommendations aimed at reducing the incidence of harmful phoenix activity. Following the release of this report, the federal opposition and the government have announced new policies on phoenix activity and both of these have included some of the suggestions made previously in the team’s final report.

Major Reports

Anderson, H, Ramsay, I, Welsh, M, and Hedges, J, Phoenix Activity: Recommendations on Detection, Disruption and Enforcement (February 2017)

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, and Withers, H, Quantifying Phoenix Activity: Incidence, Cost, Enforcement (October 2015)

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, and Withers, H, Defining and Profiling Phoenix Activity (December 2014)

Policy Submissions

H Anderson, Submission to Senate Economics Legislation Committee, ‘Inquiry Into Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019’, 1 March 2019

H Anderson, Submission to Senate Economics Legislation Committee, ‘Inquiry Into Treasury Laws Amendment (Registries Modernisation And Other Measures) Bill 2019’, 27 February 2019

H Anderson, Submission to Treasury, ‘ASIC Industry Funding Model And Registry Search Fees’, 31 January 2019

Anderson, H, Submission to Treasury (Cth), Modernising Business Registers and Director Identification Number Draft Legislation, 5 October 2018

Anderson, H, Submission to Treasury (Cth), Combatting Illegal Phoenixing Exposure Draft, 7 September 2018

Anderson, H, Submission to Treasury (Cth), Tackling the Black Economy: Designing a Modern Australian Business Number System, 23 July 2018

Anderson, H, Submission to Treasury (Cth), Treasury Laws Amendment (Taxation and Superannuation Guarantee Integrity Measures) Bill 2018, 30 January 2018

Anderson, H, Submission to Treasury (Cth), Transparency of Business Tax Debts, 17 January 2018

Anderson, H, Hedges, J, and Welsh, M, Submission to Treasury (Cth), ASIC Enforcement Review Positions Paper 7: Strengthening Penalties for Corporate and Financial Sector Misconduct, 13 November 2017

Anderson, H, Submission to Australian Securities and Investments Commission, Cost Recovery Implementation Statement: Levies for ASIC Industry Funding (2017–18), 26 October 2017

Anderson, H, Ramsay, I, Hedges, J, and Welsh, M, Submission to Treasury (Cth), Combatting Illegal Phoenixing Consultation Paper, 9 October 2017

Anderson, H, Ramsay, I, Hedges, J, and Welsh, M, Submission to Treasury (Cth), Modernising Business Registry Services Discussion Paper, 23 August 2017

Anderson, H, Ramsay, I, Hedges, J, and Welsh, M, Submission to Treasury (Cth), Black Economy Taskforce Consultation Paper, 4 August 2017

Anderson, H, Ramsay, I, Hedges, J, and Welsh, M, Submission to Inspector-General of Taxation, Review into ATO’s Fraud Control Management, 13 July 2017

Anderson, H, Hedges, J, and Ramsay, I, Submission to Treasury (Cth), Consultation Paper on Reforms to Address Corporate Misuse of the Fair Entitlements Guarantee Scheme, 7 June 2017

Anderson, H, Ramsay, I, Hedges, J, and Welsh, M, Submission to Treasury, Black Economy Taskforce Interim Report, 19 May 2017

Anderson, H, Ramsay, I, Hedges, J, and Welsh, M, Submission to Treasury, Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017: Exposure Draft, 7 April 2017

Anderson, H, Submission to Senate Economics References Committee, Inquiry into the Impact of the Non-payment of the Superannuation Guarantee, 23 January 2017

Anderson, H, Submission to Treasury, ASIC-ATO Information Sharing: Exposure Draft, December 2016

Anderson, H, Submission to Treasury, Proposed Industry Funding Model for the Australian Securities and Investments Commission: Proposals Paper, November 2016 (28 November 2016)

Anderson, H, Ramsay, I, and Welsh, M, Submission to Productivity Commission Inquiry into Data Availability and Use (5 May 2016)

Anderson, H, Ramsay, I, and Welsh, M, Submission to Senate Economics References Committee Inquiry into Penalties for White Collar Crime (24 March 2016)

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, Productivity Commission Business Set-Up, Transfer and Closure Inquiry - Response To Request For Information - Further submission to the Productivity Commission on the Director Identity Number (13 July 2015)

Anderson H, Proposed Industry Funding Model for the Australian Securities and Investments Commission (15 September 2015)

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, Submission (2) to the Productivity Commission Inquiry into Business Set-up, Transfer and Closure (2 July 2015)

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, and Withers, H, Submission to Treasury - Taxation Administration Amendment (Disclosure of Information) Regulation 2015 (21 May 2015)

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, Submission to the Senate Economic References Committee Inquiry into Insolvency in the Australian Construction Industry (24 March 2015)

Anderson, H, Welsh, M, Ramsay, I and O'Connell, A, Submission (1) to the Productivity Commission Inquiry into Business Set-up, Transfer and Closure (11 February 2015)

Anderson, H, Welsh, M, Ramsay, I and O'Connell, A, Response to Consultation Paper - ASIC's Insolvency Notices Website (27 March 2014)

Anderson, H, Welsh, M, Ramsay, I and O'Connell, A, Response to ASIC Report 391 - Deregulatory Initiatives (16 May 2014)

Other publications

M Welsh and H Anderson, “Director Restriction: An Alternative to Disqualification for Corporate Insolvency” (2019) 37(1) Company and Securities Law Journal 23.

H. Anderson, 'Piercing the Corporate Veil to Reach the Money for Employees: Why, how and Where to Next?' (2019) 36 C&SLJ 536

H Anderson, ‘Illegal Phoenix Activity: Practical Ways To Improve The Recovery Of Tax’ (2018) 40 Sydney Law Review 255 – 287.

H Anderson, ‘Insolvency: It's All About the Money’, [2018] UMelbLRS 6.

H Anderson, ‘Combatting Illegal Phoenixing – Is The Government’s Package What We Need?’ (2018) 30(1) Australian Restructuring Insolvency and Turnaround Association Journal 28 - 29.

J Hedges, H Anderson, I Ramsay and M Welsh, ‘Harmful Phoenix Activity And Disqualification From Managing Corporations: An Unenforceable Regime?’ (2018) 36(2) Company and Securities Law Journal 169 – 174.

H Anderson, ‘Shelter From The Storm: Phoenix Activity And The Safe Harbour’, (2017) 41(3) Melbourne University Law Review, 999 – 1034.

H Anderson and J Hedges, ‘Catching Pre-insolvency Advisors: the Hidden Culprits of Illegal Phoenix Activity’ (2017) 35(8) Company and Securities Law Journal 486 - 502.

Anderson, H, ‘Detecting Unpaid Superannuation: Who Knows? Who Cares?’ (2017) 29(2) ARITA Journal 34–5

Anderson, H, ‘Sidestepping Labour Law Through the Corporate Form’ in John Howe, Anna Chapman and Ingrid Landau (eds), The Evolving Project of Labour Law: Foundations, Development and Future Research Directions (Federation Press, 2017) 178

Hedges, J, Anderson, H, Ramsay, I, and Welsh, M, ‘No “Silver Bullet”: A Multifaceted Approach to Curbing Harmful Phoenix Activity’ (2017) 35 Company and Securities Law Journal 277

Anderson, H, Hedges, J, Ramsay, I, and Welsh, M, ‘Illegal Phoenix Activity: Is a “Phoenix Prohibition” the Solution?’ (2017) 35 Company and Securities Law Journal 184

Anderson, H, Ramsay, I, Hedges, J, and Welsh, M, ‘Here’s What Must Be Done to Detect, Disrupt and Deter Phoenix Activity in Australia’, The Conversation (24 February 2017)

Anderson, H, ‘Understanding the Phoenix Landscape for Employees’ (2016) 29 Australian Journal of Labour Law 257

Anderson, H, Hedges, J, Ramsay, I, and Welsh, M, 'Illegal Phoenix Activity from the Insolvency Practitioner's Perspective' (2016) 28(4) ARITA Journal 23-25

Anderson, H, Hedges, J, Ramsay, I, and Welsh, M, ‘At the Coalface of Corporate Insolvency and Phoenix Activity: A Survey of ARITA and AICM Members’ (2016) 24 Insolvency Law Journal 209

Anderson, H, Ramsay, I, and Welsh, M, ‘ASIC, Phoenix Activity and the View from the Outside’ (2016) 34 Company and Securities Law Journal 625

Helen Anderson, ‘Corporate Law and the Phoenix Company’ in Roman Tomasic (ed), Routledge Handbook of Corporate Law (Routledge, 2017) 114

Anderson, H, Hedges, J, Ramsay, I, and Welsh, M, ‘Illegal Phoenix Activity – What Do AICM Members Think About It’ (2016) 24(1) Credit Management in Australia 18-19

Anderson, H, ‘Illegal Phoenix Activity is Costing us Billions – Here’s How it Could be Stemmed’, The Conversation (26 September 2016)

Welsh, M, and Anderson, H, ‘The Public Enforcement of Sanctions Against Illegal Phoenix Activity: Scope, Rationale and Reform’ (2016) 44 Federal Law Review 201

Anderson, H, Ramsay, I, and Welsh, M, ‘Illegal Phoenix Activity – Quantifying Its Incidence and Cost’ (2016) 24 Insolvency Law Journal 95

Anderson, H, ‘FEG, Moral Hazard and the Innovation Agenda’ (2016) 28(2) Australian Restructuring Insolvency and Turnaround Association Journal 28-29

Anderson, H, ‘Labor’s Policy to Deal with Phoenix Activity Affecting Employees’ (2016) 34 Company and Securities Law Journal 316

Anderson, H, ‘Sunlight as the Disinfectant for Phoenix Activity’ (2016) 34 Company and Securities Law Journal 257

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, and Withers, H, ‘The Productivity Commission, Corporate Insolvency and Phoenix Companies’ (2015) 33 Company and Securities Law Journal 425

Anderson, H, 'Phoenix Activity - A Context not a Crime' (July 2015) Australian Insolvency Journal 35

Anderson, H, 'Is Illegal Phoenix Activity Rife among Construction Companies?', The Conversation (12 June 2015)

Anderson, H, O'Connell, A, Ramsay, I, Welsh, M, and Withers, H, ‘Profiling Phoenix activity: A new taxonomy’ (2015) 33 Company and Securities Law Journal 133

Anderson, H, 'Fraudulent Transactions Affecting Employees: Some New Perspectives On The Liability Of Advisors,' (2015) 39(1) Melbourne University Law Review 1.

Anderson, H, ‘Directors’ Liability for Fraudulent Phoenix Activity – A Comparison of the Australian and United Kingdom Approaches’ (2014) 14 Journal of Corporate Law Studies 139

Publicity

Heaton, A, 'New Laws to Target "Phoenixing" by Dodgy Company Directors', Sourceable (14 September 2017)

ABC Television, ‘Dodgy Directors’, The Business, 12 September 2017 (Elysse Morgan interviewing Andrew Leigh MP, Shadow Assistant Treasurer)

Koehn, E, ‘Tradies accused of using Bunnings’ ABN details, as calls for a system overhaul grow’, Smart Company (2 August 2017)

Butler, B, ‘Director ID could stop corporate fraud, tax panel told’, The Australian, 20 July 2017

Bullock, L, ‘ASIC funding model an “unnecessary burden” on liquidators’, Accountants Daily (30 June 2017)

Patty, A, ‘Tougher company director ID requirements under spotlight’, The Sydney Morning Herald (11 June 2017)

Andrew Leigh MP, Shadow Assistant Treasurer, Phoenixing Activity, Speech, 13 June 2017

Colquhoun, L, ‘New moves to stop illegal phoenix company activity’, InTheBlack, CPA Australia (6 June 2017)

Andrew Leigh MP, Shadow Assistant Treasurer, ASIC Supervisory Cost Recovery Levy Bill 2017, Speech, 30 May 2017

Andrew Leigh MP, Shadow Assistant Treasurer, ‘You can almost register your dog as a company director’, Media Release, 30 May 2017

Seccombe, M, ‘How subcontracting fuelled the alleged Plutus tax scam’, The Saturday Paper (27 May 2017)

Heaton, A, 'Labor Takes Aim at Phoenix Company Operators', Sourceable (26 May 2017)

Andrew Leigh MP, Shadow Assistant Treasurer, Tackling phoenix activity, Transcript – 5AA, 26 May 2017

Andrew Leigh MP, Shadow Assistant Treasurer, Exposing dodgy directors, Media Release, 24 May 2017

Andrew Leigh MP, Shadow Assistant Treasurer, There is nothing magical about phoenixing operations, Transcript – Doorstop, 24 May 2017

ABC, 'Labor unveils 'phoenixing' crackdown amid alleged $165m tax fraud scandal', RN Breakfast, 24 May 2017 (Hamish Macdonald interviewing Professor Helen Anderson)

Koehn, E, 'Labor spruiks company director ID plan: Is there bipartisan support to protect SMEs from phoenix companies?', Smart Company (24 May 2017)

Koehn, E, ‘A plan to introduce ID numbers for company directors could be in the works’, Smart Company (5 May 2017)

Epstein R, Interview with Professor Helen Anderson, ABC Drive, (27 February 2017)

Heaton, A, ‘Rein in Serial Phoenix Company Directors: Report’, Sourceable (27 February 2017)

Ferguson, A, ‘Scrutiny of phoenix trading intensifies’, Australian Financial Review (26 February 2017)

Andrew Leigh MP, Shadow Assistant Treasurer, Government must crack down on dodgy phoenix operators, Media Release, 24 February 2017

Oakes, D, and Clark, S, ‘Phoenixing companies too easy and lucrative in Australia, new report finds’,  ABC News (24 February 2017)

ABC, ‘Report shows illegal phoenixing practice remains largely undetected by regulators’, PM, 24 February 2017 (Dan Oakes interviewing Professor Helen Anderson).

Trounson, A, ‘Time to put tracking numbers on directors’, Pursuit (24 February 2017)

Bullock, L, '’Phoenix' lawyers undeterred by ATO crackdown', Lawyers Weekly (21 October 2015)

Keating, E, 'Lack of rules and data about phoenix activity compounds the problem: Research', Smart Company (20 October 2015)

Barrett, J, 'Report outlines risk of phoenix schemes', Australian Financial Review (20 October 2015)

Hepworth, A, 'ASIC tackles phoenix firms, seeks reforms', The Australian (13 July 2015)

Heaton, A, 'How Can Phoenix Companies be Stopped?', Sourceable (6 July 2015)

Professor Ian Ramsay interviewed about Illegal Phoenix Activity on Australian Broadcasting Corporation program the 7.30 Report, 'Underworld figure at the heart of building union corruption claims takes Royal Commission stand' Broadcast: 24/06/2015 Reporter: Adam Harvey

Associate Professor Helen Anderson on panel in ATO Illegal Phoenix Activity video series (21 May 2015)

'Phoenix activity in the spotlight', The Age (Melbourne, Australia) (7 January 2015)

Murray, M, 'Significant phoenix activity report', ARITA (11 December 2014)

Relevant Prior Research

Anderson, H, ‘Quantifying Illegal Phoenix Activity’ (2015) 27 (4) Australian Insolvency Journal 30-33.

Anderson, H, 'The Protection of Employee Entitlements In Insolvency: an Australian Perspective', Melbourne University Press, 2014, 274 pages

Anderson, H and Haller, L, 'Phoenix Activity and the Liability of the Advisor' (2014) 36(3) Sydney Law Review 471- 500

Anderson, H, 'Pressing the Right Buttons: Case Studies In The Protection Of Employee Entitlements' (2014) 153(1) International Labour Review 117 – 142

Anderson, H, and Hardy, T, 'Who Should be the Super Police? Recovery of Unremitted Superannuation in Insolvency' (2014) 37(1) University of New South Wales Law Journal 162 – 194

Anderson, H, 'Thinking Outside The Square – Alternative Approaches To The Protection Of Employee Entitlements' (2014) 32(1) Company and Securities Law Journal 23 – 43

Anderson, H, 'Corporate Insolvency and the Protection of Lost Employee Entitlements: Issues in Enforcement' (2013) 26 Australian Journal of Labour Law 75 -101

Anderson, H, 'An Ounce of Prevention: Practical Ways to Hinder Phoenix Activity' (2013) 25(3) Australian Insolvency Journal 16 – 18

Anderson, H, 'The Proposed Deterrence Of Phoenix Activity – An Opportunity Lost?' (2012) 34(3) Sydney Law Review411

Anderson, H, Welsh, M, Ramsay, I and Gahan, P, 'The Evolution of Shareholder and Creditor Protection in Australia: an International Comparison' (2012) 61 International and Comparative Law Quarterly 171

Anderson, H and Howe, J, 'Making Sense of the Compensation Remedy in Cases of Accessorial Liability under the Fair Work Act' (2012) 36(2) Melbourne University Law Review 335 – 368

Anderson, H, 'Comment On Consultation Paper 180: ASIC's Power To Wind Up Abandoned Companies', (2012) 30(8) Company and Securities Law Journal 528 – 533

Anderson, H, 'Voluntary Administration and the Protection of Employee Entitlements' (2012) 30 Company and Securities Law Journal 170 – 187

Anderson, H, 'Phoenix Activity and the Recovery of Unpaid Employee Entitlements - Ten Years On' (2011) 24(2) Australian Journal of Labour Law 141 – 162