ATO and ASIC Target Illegal Phoenix Activity

In August 2016, the ATO and the ASIC conducted raids on 13 businesses and residences in Brisbane, the Gold Coast and Melbourne. The raids were targeted at one or more pre-insolvency advisors who the ASIC and the ATO suspected may have been involved in facilitating illegal phoenix activity.

Illegal phoenix activity commonly occurs where the business, or certain assets, of an insolvent company are transferred to a related entity for less than fair market value and not on commercial terms.  Such a transaction may disadvantage creditors and may give rise to breaches of director’s duties, recovery claims by a liquidator and offences being identified by the ASIC.  The ASIC may subsequently prosecute directors whose company engages in illegal phoenix activity.

Deputy Commissioner of Taxation Michael Cranston is quoted on the ATO’s website as making the following comments regarding the raids which the ATO recently carried out with the ASIC:

“These visits are part of an ongoing investigation into the activities of a firm of pre-insolvency advisors and their involvement in encouraging and facilitating illegal phoenix activity, evading GST and failing to pay tax on $22 million of unreported income.”

“Unlike registered liquidators these self-proclaimed ‘specialists’ operate in an unregulated environment. Tax professionals, liquidators and their professional associations have said they are also concerned about how the behaviour of a minority undermines the whole insolvency industry.”

There has recently been a significant growth in the number of unqualified and unregulated advisers who provide advice to company directors regarding insolvency.  In this regard it is important for a company’s directors to obtain proper advice when a company is insolvent and we would recommend that this advice be obtained from a qualified insolvency practitioner or a solicitor.

Advice and Assistance

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