ATO and ASIC taskforce makes use of intelligence sharing to weed out phoenix companies and rogue “pre-insolvency” advisers

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A taskforce of federal government agencies is used shared intelligence to uncover potential phoenix operators and rogue “pre-insolvency” advisers, but the business community will still have to wait to see whether phoenix prevention tools like director identification number (DINs) ever make their way into legislation.

On Monday ASIC commissioner John Price told Fairfax that “phoenix advice” passed onto businesses by “pre-insolvency experts” is an increasing area of focus for the Australian Securities and Investments Commission, while ASIC senior leader for insolvency practitioners Adrian Brown said a new “in flight phoenix” regulatory strategy had been used in seven phoenix-related cases so far this year.

The comments come as the 20-member cross-agency “Phoenix Taskforce” continues to work on reducing the multibillion-dollar losses from company directors that liquidate businesses only to be “rebirth” these as new entities, resulting in losses to creditors, workers and the tax office.

Established in early 2017, the taskforce is made up of members of the Australian Taxation Office, ASIC, the Fair Work Ombudsman, the Department of Employment and other government agencies.

It aims to share data and intelligence to capture both phoenix companies and those potentially aiding businesses by providing unlawful insolvency advice.

The “in flight phoenix” philosophy is understood to be a process of sharing intelligence across agencies to pinpoint potential phoenix activity that is otherwise difficult to track. However, speaking to experts in the area this morning, SmartCompany was told the exact processes for analysing this information is unclear.

ASIC was approached for comment on the seven cases that have reportedly involved “in flight phoenix” strategies, but the Commission was unable to provide comment on prior to publication.

The ATO was unable to give further insights on priority areas for the taskforce this morning.

However, the tax office reports that in the 2015-16 financial year, 1000 audits into potential phoenix behaviour resulted in $250 million in liabilities being claimed from business operators. That figure is a sliver of the $3.2 billion the Productivity Commission estimated the practice costs Australia each year.

Agreement on director ID numbers, but where to from here?

One proposal to help track company directors and fight serial phoenix operators is supported across the political spectrum, but the path towards introducing director identification numbers (DINs) still remains unclear years after the idea was first floated.

The Productivity Commission’s 2015 report on the issue recommended the implementation of DINs for every Australian wanting to direct a company. The model that has been proposed would involve an individual applying to ASIC upon the commencement of their first company directorship, providing proof of identification and being issued with an ID number that would stay with them throughout their lives, making the connection between insolvencies and individuals easier to track.

The Labor Party has outlined a range of policies to fight phoenix activity, including a pledge to introduce company identification numbers, but insists that despite taking the Productivity Commission’s suggestions being under consideration, the government has never openly supported the move.

“We already have the backing of organisations such as the Productivity Commission, Tax Justice Network and Australian Chamber of Commerce and Industry — all we need now is the Turnbull Government to get on board with our sensible suggestions,” shadow assistant treasurer Andrew Leigh said last week, after a broad consensus on the value of the DIN was reached at a public hearing of the Senate standing commission on taxation in Melbourne.

The Turnbull government says it continues to consider implementation of the scheme, with Small Business Minister Michael McCormack telling SmartCompany in May the topic forms part of the government’s ongoing considerations on insolvency reform.

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4 years ago

is there a database or reporting form or email where phoenix companies and directors can be reported?

4 years ago

they should investigate John Kukulovski

Colin Spencer
Colin Spencer
4 years ago

Check out Endless Swim Pool & Spa businesses. There are countless variations of the combination of the words for that company, and I searched their various histories many years ago. They had declared bankruptcy on a pretty regular basis, wiped off all unsecured creditors, and simply traded on. Usually in the same premises with a few small changes in directors. One of the former directors even became the receiver for a subsequent version of the company. I searched them widely because I was suspicious. They had defaulted on a trade debt of around $3000, and as soon as I sent a solicitor’s letter, back came the bankruptcy notice. (Kiss your $3000 goodbye, in other words).