422:, in a significant extension of liability, found that a legal advisor was not just complicit in certain directors’ breaches of duty, but was in fact instrumental in structuring new companies into which the assets of various insolvent companies were transferred. ASIC only sought disqualification for the advisor, but there has been debate as to whether it should have also sought compensation for creditors or a penalty in the circumstances.
716:, (1999) 150 FLR 43 (26 March 1999) (where the director of a company with substantial sales tax liabilities stripped the company of its assets and transferred them to another company, and then to a third company, while carrying on the same business under the same trading name, and without adequate consideration being given in each transfer to satisfy outstanding liabilities).
169:
net pay is reimbursed by the sales company but not the payroll deductions or taxes. Often the labour hire company is a façade, merely issuing payment summaries, while the sales company pays the workers directly. Eventually the labour hire company is forced into liquidation, while the underlying assets are preserved in the management company.
47:, to trade in the same or similar trading activities as the former, and is able to present the appearance of "business as usual" to its customers. It has been described as "one that arises amidst or from the disarray and demise of its predecessor." A phoenix company may be classified either "innocent"/"bona fide" or abusive.
322:
provides for both criminal and civil liability where directors or shadow directors of a company that has entered into liquidation become a director, or otherwise involved in the formation or management of another company that operates under the same or a similar name to the insolvent one, within the
397:
The economic cost of phoenix activity has been estimated in 1996 by the
Australian Securities Commission, and in 2012 by the Fair Work Ombudsman. While there is economic cost associated with all phoenix activity, the underlying behaviour is not always illegal and this makes estimating the economic
168:
This structure utilizes a management company, a sales company and a labour hire company. The sales company receives all the income arising from the business, while the management company charges the sales company for the use of the assets. The labour hire company employs the workers, for which the
159:
The productive assets are kept in a management company, which is kept solvent. A second labour supply company employs the workers and conducts the principal business operations. Profits are stripped from the second company through high rates charged for the use of the first company's assets, which
150:
A closely held company is formed, which operates for a period of 6–24 months. During that time, it accumulates large debts, stalls creditors for as long as possible, and, when pressure becomes too great, it goes into liquidation. Another company, frequently with a very similar name, purchases the
384:
to directors of phoenix companies in certain circumstances, but limited legislation directed at illegal phoenix activity was passed. In 2015 two significant government reports were released that included a consideration of how best to address phoenix activity: the
Productivity Commission Report
434:
An abattoir business in New South Wales was pursued several times: initially for closing a business, terminating the staff, and setting up a new one while refusing to rehire ex-employees who were union members; and later for hiring workers through a separate subsidiary who worked for another
190:
The primary identifiers of abusive phoenix activity have been described as "a deliberate and often cyclical misuse of the corporate form accompanied by a fraudulent scheme to evade creditors". Several common characteristics have been identified as indicating harmful phoenix activity:
393:
Despite the frequency and volume to attention given to phoenix activity by government and regulators, scholars note that "here is no law in
Australia that defines 'phoenix activity', nor declares it illegal"; "phoenix activity is an operational term, not a legal one".
105:
Such activity can also be characterized as either "basic" (involving replacement of one entity by another) or "sophisticated" (which has regard for the intricacies of corporate groups, where management and directors may misuse the concept of the
344:
to cover the debt. Moreover, the House of
Commons' Business and Enterprise Select Committee also raised concerns that the law may "adversely affect competitors, who will continue to carry costs which the phoenix company has shed."
89:
The nature of the industry may potentially heighten the risk of phoenix activity. Once a company has collapsed, the operators of the business may have little option but to return to the same industry in the form of a new business.
98:
These operators purposely structure their operations in order to engage in phoenix activity and to avoid detection. These offenders are often selective as to which debts they will pay throughout the life of the company.
335:
There has been criticism in both the media and in
Parliamentary quarters, as to the adverse effect on small to medium-sized suppliers to a failed company, whose position as creditors leaves them having to write off
179:
Former directors can control a company through spouses, relatives and associates. There is little to prevent a disqualified director from giving advice as an employee of a successor company.
160:
leaves the second with insufficient funds to pay its liabilities. Eventually, the second company will be liquidated, with little to no capital reserves, and a new one will rise in its stead.
151:
productive assets and takes over the operations of the failing company. Often the new company operates out of the same premises, with the same suppliers, employees and customers.
256:
It is perfectly legal to form a new company from the remains of a failed company. Any director of a failed company can become a director of a new company unless he or she is:
327:
to wind up a company, as in the 2014 case of
Pinecom Services Limited and Pine Commodities Ltd (which had continued a business previously shut down in the public interest).
882:
975:
354:
288:
81:
A business gets into a position of doubtful solvency or insolvency, and directors try and recover as much as possible from the business before it collapses.
438:
A sole director of a transport company was fined for forcing a company into liquidation in order to avoid a claim by an employee for underpayment of wages.
1040:
921:
361:
708:, WAR 183 (where a director transferred the business name and assets from one company to another, in order to avoid paying an arbitration award);
61:
314:
prohibits directors whose conduct led to the insolvency of a company from taking on similar roles elsewhere for a prescribed length of time.
310:
The law allows the directors of a failed company to be reinstated in the same, or similar posts in the phoenix company, within limits. The
311:
263:
901:
435:
connected company, and then draining the first company of funds after terminating several workers, before sending it into liquidation.
1256:
601:
764:
1044:
1024:
586:
1107:
380:
passed several Acts in 2012 as a result. An exposure draft was also issued for comment on the question of whether to assign
36:
222:
the successor company commences trading immediately prior to, or within 12 months of, the cessation of the failed entity
287:
Other less scrupulous directors may undertake such activity in order to evade liabilities to workers that accrue from
983:
341:
372:, who have been pursuing those undertaking such practices to evade liability under their respective statutes. The
1011:
935:
640:
17:
922:"Government urged to re-think decision not to offer creditors more legal protection from 'phoenix' companies"
862:
419:
966:
883:"Two carbon copy companies that raked in nearly £2m are shut down after Insolvency Service investigation"
840:
667:
381:
353:
Phoenix activity was identified in government reports as early as 1994, and the 2003 Final Report of the
210:
the failed company makes preferential payments to key creditors to assure supply to the successor company
457:
365:
304:
300:
44:
639:
Except where leave of the court has been granted, or prescribed circumstances are met, in which case
564:
530:
496:
249:
377:
619:
373:
1138:
847:
574:
411:
Several significant cases have dealt with the liability of directors conducting such activity.
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1222:
1190:
663:
658:
644:
551:
540:
517:
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483:
324:
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713:
245:
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assets of the failed company are transferred at below market value to the successor company
315:
8:
906:
369:
319:
277:
472:
886:
672:
296:
376:
issued proposals in 2009 on options to deal with fraudulent phoenix activity, and the
1020:
979:
582:
228:
many of the employees of the failed company are re-employed by the successor company
292:
241:
201:
the directors/managers/controllers of the failed and successor company are the same
118:
114:
240:
in the UK has been formed to enable such activity in order to protect and promote
207:
assets of the failed company are depleted shortly before the cessation of business
867:
174:
133:
Phoenix activity is generally observed to occur through the following scenarios:
40:
692:
685:
450:
107:
323:
following twelve months of such liquidation. Remedies include petitioning the
1250:
612:
473:"Combating the Phoenix Phenomenon: An Analysis of International Approaches"
391:
I just want to be paid: Insolvency in the
Australian Construction Industry.
28:
428:
The Fair Work
Ombudsman has also investigated several high-profile cases:
237:
64:
has identified three groups of operators that practice phoenix activity:
113:
Certain sectors see more frequent phoenix activity than others. In the
32:
244:, by reducing risk and improving the chances of continued trading and
942:. Business and Enterprise Committee, House of Commons. 21 April 2009.
122:
398:
costs associated with illegal phoenix activity extremely difficult.
798:
596:
507:"The Proposed Deterrence of Phoenix Activity: An Opportunity Lost?"
337:
270:
1041:"Exposure Draft: Corporations Amendment (Similar Names) Bill 2012"
340:
from the former company, with the phoenix company having shed all
303:
has held that such moves are generally barred under s. 218 of the
992:
799:"The conundrum of phoenix activity: Is further reform necessary?"
357:
devoted a chapter to its practice in that sector of the economy.
1094:
Phoenix
Companies and Insolvent Trading Research Paper No 95/01
1083:
Australia, Senate
Economic References Committee, December 2015.
1058:
Corporations Amendment (Phoenixing and Other Measures) Act 2012
686:
Corporations Amendment (Phoenixing and Other Measures) Act 2012
597:
The Conundrum of Phoenix Activity: Is Further Reform Necessary?
647:
governs the manner in which notice must be given to creditors.
1168:
1156:
1144:
195:
the failed entity is formed with only a nominal share capital
1013:
Actions against Fraudulent Phoenix Activity: Proposals Paper
976:
Royal Commission into the Building and Construction Industry
734:
732:
355:
Royal Commission into the Building and Construction Industry
1203:
Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (No 2)
1109:
Phoenix Activity: Sizing the Problem and Matching Solutions
219:
the successor company trades with the same or similar name
729:
213:
the failed entity was operated to evade prior liabilities
1116:
1073:. Australian Government, Productivity Commission. 2015.
946:
31:
which has emerged from the collapse of another through
848:
Da Silva Junior v Composite Mouldings & Design Ltd
744:
706:
Jeffree v National Companies and Securities Commission
821:
771:
389:
and the Senate Economic References Committee Report:
55:
1187:
Fair Work Ombudsman v Ramsey Food Processing Pty Ltd
1219:
Fair Work Ombudsman v Foure Mile Pty Ltd & Anor
541:"Phoenix Activity and the Liability of the Advisor"
216:
the successor company operates in the same industry
362:Australian Securities & Investments Commission
693:Tax Laws Amendment (2012 Measures No. 2) Act 2012
1248:
765:"Phoenixing: Tempers flare as the phoenix rises"
613:"The Complete Guide to Illegal Phoenix Activity"
62:Australian Securities and Investments Commission
965:Cole, Terence (2003). "12: Phoenix Companies".
401:Enforcement activity has been active under the
1174:
1162:
1150:
998:
924:. Forum for Private Business. 27 January 2012.
762:
538:
1019:. Canberra: Commonwealth of Australia. 2009.
204:the failed entity is trading whilst insolvent
50:
39:" and similar schemes that strictly focus on
1237:
738:
575:"6: Phoenix Activity - Companies in Crisis"
572:
312:Company Directors Disqualification Act 1986
278:bankruptcy restriction order or undertaking
125:agencies are known to "phoenix" regularly.
860:
573:Margret, Julie E.; Peck, Geoffrey (2015).
1096:. Australian Securities Commission. 1996.
1122:
952:
936:"3: Confidence in the Insolvency Regime"
902:"Phoenix firms spark fly-by-night fears"
863:"Stop the phoenix rising from the ashes"
504:
796:
539:Anderson, Helen; Haller, Linda (2014).
501:(2010) 8(2) eJournal of Tax Research 90
1249:
899:
851:, UKEAT 0241_08_1808 (18 August 2008)
387:Business Set Up, Transfer and Closure,
360:It has attracted the attention of the
198:the failed entity is under-capitalized
185:
1141:, 77 NSWLR 110 (8 September 2009)
1071:Business Set up, Transfer and Closure
827:
777:
470:
264:disqualification order or undertaking
964:
940:Sixth Report: The Insolvency Service
843:. Thompsons Solicitors. 2 July 2009.
792:
790:
788:
786:
750:
128:
900:Miller, Robert (28 February 2006).
763:David Quainton (12 December 2008).
569:(2014) 36(3) Sydney Law Review 471.
535:(2012) 34(3) Sydney Law Review 411.
453:, an example of a phoenix company (
13:
464:
56:Types of phoenix company operators
14:
1268:
1231:
783:
460:, the "original" General Motors).
291:, such as the right to claim for
232:
43:, the new company is set up as a
16:For companies named Phoenix, see
1257:Bankruptcy in the United Kingdom
1212:
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1128:
1100:
1086:
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1004:
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928:
914:
893:
875:
841:"Workers' rights on insolvency"
699:
678:
650:
581:. Routledge. pp. 108–131.
1238:Reena Popat (6 January 2013).
854:
833:
756:
633:
1:
723:
579:Fraud in Financial Statements
420:New South Wales Supreme Court
1240:"What is a phoenix company?"
1112:. Fair Work Ombudsman. 2012.
615:Sewell & Kettle Lawyers.
348:
330:
7:
1135:ASIC v Somerville & Ors
861:Jim Davies (4 March 2005).
620:"What is a Phoenix Company"
444:
382:joint and several liability
10:
1273:
1175:Anderson & Haller 2014
1163:Anderson & Haller 2014
1151:Anderson & Haller 2014
999:Anderson & Haller 2014
595:Matthew, Anne F. (2015). "
458:Motors Liquidation Company
366:Australian Taxation Office
305:Employment Rights Act 1996
301:Employment Appeal Tribunal
295:, or to receive statutory
172:
163:
154:
145:
93:
84:
78:Innocent phoenix operators
76:
51:Nature of phoenix activity
15:
1139:[2009] NSWSC 934
974:. Vol. 8. Canberra:
797:Matthew, Anne F. (2015).
656:being, respectively, the
1223:[2013] FCCA 682
1191:[2011] FCA 1176
626:
618:Phoenix Recovery (2020)
505:Anderson, Helen (2012).
250:National Fraud Authority
1207:[2012] FCA 408
739:Margret & Peck 2015
378:Parliament of Australia
1242:. London: Darlingtons.
1193: (19 October 2011)
803:Insolvency Law Journal
714:[1999] QCA 95
602:Insolvency Law Journal
559:Cite journal requires
525:Cite journal requires
491:Cite journal requires
471:Roach, Murray (2010).
374:Treasurer of Australia
285:
659:Corporations Act 2001
645:Insolvency Rules 1986
289:continuous employment
254:
147:"One after the other"
37:bottom of the harbour
1209: (20 April 2012)
978:. pp. 111–217.
622:phoenixcompany.co.uk
611:Sewell, Ben (2020).
269:personally adjudged
246:business development
18:Phoenix § Businesses
1225: (28 June 2013)
1047:. 20 December 2011.
1001:, pp. 472–473.
907:The Daily Telegraph
753:, pp. 118–119.
370:Fair Work Ombudsman
320:Insolvency Act 1986
297:redundancy payments
252:has observed that:
186:Indicators of abuse
95:Careerist offenders
86:Occupational hazard
887:Insolvency Service
673:Fair Work Act 2009
670:statutes, and the
641:Part 4, Chapter 22
156:Management company
1026:978-0-642-74528-6
830:, pp. 95–96.
780:, pp. 96–97.
767:. Event Magazine.
588:978-0-415-74270-2
416:ASIC v Somerville
183:
182:
129:Phoenix scenarios
103:
102:
29:commercial entity
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403:Corporations Act
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242:entrepreneurship
175:Shadow directors
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119:public relations
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27:is a successful
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889:. 11 July 2014.
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868:Accountancy Age
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465:Further reading
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115:events industry
60:A study by the
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45:legal successor
41:asset stripping
25:phoenix company
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1233:
1232:External links
1230:
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1177:, p. 477.
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811:. Retrieved
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813:18 February
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238:Company law
165:Labour hire
828:Roach 2010
778:Roach 2010
724:References
325:High Court
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33:insolvency
751:Cole 2003
455:vis a vis
349:Australia
342:liability
331:Criticism
123:marketing
1251:Category
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