Question

Research and upload five Australian articles relating to phoenix activities that will assist you in answering below. Your articles can be from cases, case notes, journal articles, opinions and publications from legal firms, Government bodies such as the ASIC, APRA, and other specific government bodies such as the ATO. . Discuss whether illegal phoenix activities have occurred in the above scenario. What are the warning signs of illegal phoenixing and whether these warning signs existed in the above scenario?

Answer 1

The first type of illegal phoenixing occurs where a company was set up with the best of intentions but nonetheless finds itself in financial difficulties.

The intention to engage in the phoenixing behaviour is formed at a later time, at, or immediately prior to, the failure of the business. The controllers in this scenario deliberately seek to separate the business from its debts, including loans, tax debts, trading debts, judgment debts, or employee entitlements.

The illegality of the behaviour turns on the improper intention of the company’s controllers, which inevitably involves a contravention of one or more laws such as the directors’ duties or the provisions governing the fraudulent removal of company property.

The fact that there is no express ‘phoenix offence’ presents difficulties in classifying these cases, because courts often describe the typical circumstances of a phoenix but do not use that actual term.

In the second type of illegal behaviour, the company is deliberately set up to be phoenixed; that is, its controllers never intend the company to succeed. After accumulating tax debts, trading debts, judgment debts or other liabilities, the controllers transfer the assets out of the company and liquidate it or leave it dormant to be eventually deregistered by ASIC.

Illegal phoenix activity exhibits the same characteristics as the second type of illegal phoenixing in that the company was deliberately set up to avoid payment of debts from the outset. However, complex illegal phoenix activity is also likely to coincide with other forms of illegality, such as:

The use of false invoices, including GST fraud;

False identities;

Fictitious transactions;

Money laundering;

Visa breaches and misuse of migrant labour