Illegal phoenix activity is defined as a step to establish a brand new company to continue operations of an already existing organisation purposely dissolved in order to avoid payment of that organisation’s debts (including taxes, credits and employee benefits).
This activity adversely impacts upon the business community, employees, contractors, government and the environment through the non-payment of wages, taxes, employee benefits and government taxes, non-payment to suppliers and non-compliance with regulatory obligations, by the dissolved organisation.
One can counter the activities of a phoenix organisation by conducting due diligence and obtaining background verification on the organisation prior to engaging with it in any commercial way.
At a minimum, such a verification process should include:
- Confirming that the organisation is registered with ASIC and has an ABN;
- Conducting a credit check on the organisation;
- Seeking references for the organisation within the business community;
- Obtaining ASIC’s latest report for the organisation;
- Conducting thorough research with respect to the organisation and its board. Check for yourself whether the organisation has been involved in any form of misconduct;
- Charge the organisation upfront for any services provided to them;
- Include a term in your agreement with the organisation that it must pay all taxes as and when they fall due. This is will create a contractual binding obligation.
In a bid to counter illegal phoenix activity, the Federal Government has set up a Phoenix Taskforce that comprises 20 Federal, State and Territory government agencies/bodies including the ATO, Australian Securities & Investments Commission (ASIC), Department of Employment and the Fair Work Ombudsman. This Taskforce aims to combat illegal phoenix activities. It provides tools to assist in identifying, managing and monitoring suspected illegal phoenix organisations, deals firmly with those identified and mitigates such organisations posing substantial risk to the integrity of the corporate system.
For further information or assistance, please contact Meghan Warren, Principal of Burke & Associates Lawyers.