Aug 18, 2008

Phoenix companies: a lurk on the rise

A showdown is looming between the Australian Taxation Office and Liquidators over the explosion in use of phoenix companies, writes Chris Seage.

A showdown is looming between the Australian Taxation Office and Liquidators over the explosion in use of phoenix companies. In a nutshell, a phoenix company, according to the ATO, is when individuals use limited liability companies to accumulate debts (usually to the Tax Office), liquidate the companies concerned and then carry on their business via a newly formed company. The cycle is repeated; the phoenix rises again.

In almost all cases the entities placed into liquidation have no assets and consolidated revenue is the big loser as the ATO cannot collect the PAYG, GST and Superannuation guarantee usually owing. The tax office is fed up with being left empty handed when these companies go down and is now targeting the directors of the companies and making them personally liable for the unpaid debts of the failed business.

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3 thoughts on “Phoenix companies: a lurk on the rise

  1. Les Heimann

    Phoenix company problems were not “discovered” by the ATO in 1998. They were one of the major reasons posited by the ATO for the revenue leakage (flood really) systemic in the old Sales Tax system. Been around for generations and the GST has done bugger all to fix them. Of course the ATO chased company directors of phoenix companies going back to the 1970’s (and before) with some but not much success. Nothing has changed and at the end of the day the ATO still has to demonstrate that the companies have gone into liquidation to escape their tax liabilities. Used to be that the law said you had to pay tax debts before anyone else got a look in – not any more. No matter which way you look there’s nothing new in tax cheating but it’s getting harder and harder to prove the cheats are cheating.

  2. Mervyn Langford

    Does the apparent problems the ATO is having with James Hardy (+/- $230m in outstanding taxes and penalties, Financial Times p7, 14/8/08) , amount to phoenixing?

  3. Ian Scott

    I can’t comment on how widespread this practice has been but a number of charities were caught or nearly caught by something similar in the 1990s. Individuals in a printing company we were about to use apparently had a history of taking on ‘charity’ jobs, raising funds for printing and distribution, delaying output or printing in a low cost way and then collapsing with all funds having been used in high cost transactions for rent and services. One of the serially involved parties was a lawyer who wrote threatening dire legal consequences for any comment on what had happened. Administrative staff at Non profits were not experienced, publicity shy and intimidated. We considered ourselves very fortunate, withdrawing from an arrangement and then finding out quietly about the practice once the threats started but shocked that people could be associated with the practice time and again without apparent sanction.

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