In the recent federal budget, the Government has vowed to combat illegal phoenix activity by reforming existing corporations and tax laws and granting the Australian Taxation Office additional power. Accordingly, the proposed changes are credited as complementing  the work of the Government’s Phoenix, Serious Financial Crime and Black Economy taskforces, with Federal Treasurer Scott Morrison asserting they will ensure small businesses “don’t get ripped off by other businesses who deliberately go bust to avoid paying their bills.”

Illegal phoenixing occurs when a company’s directors allow a business to collapse in order to avoid paying creditors, either through directors resigning or through the business going into administration. All too often the practice results in customers not receiving goods or services they have paid for, lost payments for small businesses and lost wages and entitlements for affected employees. Ultimately, it has an adverse impact on the economy, with illegal phoenix operators gaining an unfair advantage over honest businesses.

Under the proposed budget, the government has allocated $40million to be spent over the next four financial years, introducing new phoenix offences to target those who conduct or facilitate illegal phoenixing. Specifically, these measures endeavour to prevent directors from backdating their resignations, limiting the ability of directors to resign and restricting the ability of related creditors to appoint or remove external administrators.

Moreover, it will expand the ATO’s power to retain refunds where there are outstanding tax lodgements and will extend the Director Penalty Regime to include GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts.