Package of reforms to address illegal phoenixing

Media release, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, 12 September 2017:

The Turnbull Government is taking action to crack down on illegal phoenixing activity that costs the economy up to $3.2 billion per year to ensure those involved face tougher penalties, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced today.

Phoenixing – the stripping and transfer of assets from one company to another by individuals or entities to avoid paying liabilities – has been a problem for successive governments over many decades. It hurts all Australians, including employees, creditors, competing businesses and taxpayers.

The Government’s comprehensive package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity.

The DIN will identify directors with a unique number, but it will be much more than just a number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.

In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers. These include:

• Specific phoenixing offences to better enable regulators to take decisive action against those who engage in this illegal activity;
• The establishment of a dedicated phoenix hotline to provide the public with a single point of contact for reporting illegal phoenix activity;
• The extension of the penalties that apply to those who promote tax avoidance schemes to capture advisers who assist phoenix operators;
• Stronger powers for the ATO to recover a security deposit from suspected phoenix operators, which can be used to cover outstanding tax liabilities, should they arise;
• Making directors personally liable for GST liabilities as part of extended director penalty provisions;
• Preventing directors from backdating their resignations to avoid personal liability or from resigning and leaving a company with no directors; and
• Prohibiting related entities to the phoenix operator from appointing a liquidator.

The Government will also consult on how best to identify high risk individuals who will be subject to new preventative and early intervention tools, including:

• a next-cab-off-the-rank system for appointing liquidators;
• allowing the ATO to retain tax refunds; and
• allowing the ATO to commence immediate recovery action following the issuance of a Director Penalty Notice.

Consultation on the non-DIN measures will commence in the coming weeks.

These reforms complement and build on other Government action to combat crime and fraud in the economy, including:

• • instituting the Phoenix, Black Economy and Serious Financial Crime Taskforces;
  • strengthening disciplinary rules for insolvency practitioners;
  • legislating to improve information sharing between key regulatory agencies;
  • reviewing and enhancing ASIC’s powers and enforcement tools;
  • consulting on law reform initiatives to curb the excessive drain on the taxpayer funded Fair Entitlement Guarantee scheme, which covers employees’ entitlements left outstanding as a result of failed business enterprises;
  • improving the collection of GST on property transactions from 1 July 2018; and
  • consulting on a register of beneficial ownership of companies to be made available to key regulators for enforcement purposes.

“The Turnbull Government is committed to ensuring individuals who engage in illegal phoenixing activity are held to account and that the regulators are equipped to take stronger action to both deter and penalise phoenixing activity for the benefit of all Australians,” Minister O’Dwyer said.

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