Support for phoenixing reforms

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SBDC commissioner David Eaton says the corporation supports proposed reforms to better protect creditors and small businesses from companies engaging in illegal phoenix activities.

THE Australian Securities and Investments Commission and the Institute of Public Accountants were among those which made submissions to the Combating Illegal Phoenixing consultation paper.

Illegal phoenix activity – estimated to cost the Australian economy up to $5.13 billion – is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.

While illegal phoenix activity has many victims, the impact on small business, particularly, can have a catastrophic effect on their operations as well as personal lives.

The Australian Securities and Investments Commission (ASIC) said removing incentive and prevention through reducing opportunity was often a better alternative to investigations and enforcement action later on.

The Institute of Public Accountants (IPA) said it was one of the three professional accounting bodies in Australia, representing more than 35,000 members and students in more than 80 countries.

“The IPA prides itself in not only representing the interests of its members and but also Australia’s  small business sector,’’ its submission said.

The IPA said ‘Combatting illegal phoenixing’ was an essential activity to protect small bsuiensses that may be vulnerable and fall victim to illegal phoeninxing.

It had therefore made numerous recommendations that it believed would assist the federal government in setting a new agenda.

Extensive recent reviews of the construction industry have highlighted illegal phoenix activity on a national scale.

But the activity is not limited to construction, and affects other industries such as service provision, manufacturing and hospitality.

As part of a national campaign to target illegal phoenix activity, the Australian Treasury plans to modernise business registers and introduce director identification numbers (DINs).

The consultation period for draft legislation to amend the legal framework in this regard closed on October 26.

The introduction of DINs will enable government regulators, including ASIC, to map the relationship between individuals and entities and individuals and other people.

The major benefit of the DIN is that the unique identifier stays permanently with the individual, even if their directorship of companies changes.

Small Business commissioner David Eaton welcomed the Federal Government’s commitment to reform corporation and tax laws as a way to combat illegal phoenix activity as outlined in the 2018-19 Budget.

“The Small Business Development Corporation (SBDC) supports the proposed reforms to better protect creditors and small businesses from the losses suffered as a result of unscrupulous companies engaging in illegal phoenix activities,” he said.

“There is enormous benefit to introducing DINs from a small business perspective, as it will offer a greater level of protection for suppliers and other creditors as company director ‘movements’ will be tracked.

“While this is a great step forward, we believe that more should be done to hold company directors to account when they choose to repeatedly engage in conduct that amounts to illegal phoenix activity. “Directors serve a very important role and their conduct can have grave effects on employees and creditors when they engage in illegal phoenix activity.

“We are advocating to the federal government that further consideration be given to targeting serial offenders, by way of reversing the onus of proof on company directors that have a string of entities that they are ‘fit and proper.

“The SBDC is particularly interested in reducing the impacts on small business of illegal phoenix activity in Western Australia and eagerly awaits the final recommendations following the conclusion of the consultation period on October 26.”