According to Printing Industries, printing companies and suppliers have been unwitting victims and suffered severe financial loss as a result of such activities during the past few years.

‘Fraudulent’ phoenix activity differs from normal instances of phoenix activity. It involves the evasion of tax and other liabilities through the deliberate, systematic and cyclic liquidation of related corporate entities.

‘Normal’ phoenix activity involves a genuine business failure involving a business that has been responsibly managed and subsequently continues using another corporate entity.

Specific recommendations made by Printing Industries to the Federal Government include:

• Developing a new test to distinguish ‘fraudulent’ phoenix activity from normal instances of phoenix activity.

• Ruling that if the directors of a particular company continue to operate and incur debts while being aware that the company is technically insolvent, then actions associated with the subsequent transfer of the assets of the old firm to the new firm should be declared as constituting fraudulent phoenix activity.

• Removal of the limited liability protection for company directors involved in fraudulent phoenix activity.

• Making company directors engaged in fraudulent phoenix activity liable for the debts of liquidated companies.

• Expanding the director penalty regime to include other liabilities such as superannuation and other taxation liabilities.

• Setting the proposed trigger mechanism for the director penalty regime at 3 months for unpaid statutory liabilities.

• Reinstating the “failure to remit” offence for amounts deducted from employees wages and salaries but  subsequently not paid to the ATO.

• Banning company directors engaged in fraudulent phoenix activity from assuming directorships in other companies until such time that they have paid the unsecured creditors of the failed company and/or have reached an amicable settlement.

• Permanently disqualifying company directors who have been involved in 2 or more fraudulent phoenix activities.

• Continuing to provide the Australian Securities and Investments Commission (ASIC) with adequate funding to enable it to expand various administrative programs aimed at deterring fraudulent phoenix activity.

• Getting the ATO to shift its focus from “containment” to “effective management” of collectible debt to help reduce potential fraudulent phoenix activity.

Hagop Tchamkertenian, national manager for policy and government affairs at Printing Industries says the current inquiry into fraudulent phoenix activity offered an opportunity for the industry to provide useful insights and feedback.

He says, “Industry members who fall victim to fraudulent phoenix activity often fail to recoup funds owing to them as they are treated as unsecured creditors.”

Tchamkertenian continues, “In recent examples suppliers of paper and other printing industry consumables as well as printing companies have been offered as little as 5 cents in the dollar by appointed administrators for the outstanding debts of liquidated companies.”

Also according to Tchamkertenian, the annual cost to Australia’s economy from phoenix related activities was estimated at more than $3.3bn.

“Fraudulent phoenix activities are not only criminal in nature but they also promote uncompetitive practices. Companies engaged in such activities by avoiding their taxes, statutory obligations and other obligations assume a certain cost advantage and have the potential of hurting law abiding businesses,” Tchamkertenian says.

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