![]() ![]() The one that passed in February 2020 was called Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth). The government has had several tries at introducing laws to combat illegal phoenix activity over the last ten years, and not all of them have stuck. The ultimate objective is to have the liquidator then pursue a debt due from the Holding Company to the payroll company in liquidation.ĬALL US NOW FOR CONFIDENTIAL, FREE ADVICE Law reform on Phoenix companies The ATO approach is to issue default assessment against the Payroll company and to also seek to have a liquidator appointed to the payroll company. ![]() The holding company simply abandons the subsidiary and creates a new payroll company. That company will incur a large debt to the ATO for deducted PAYG deductions from staff wages. That is, where a company sets up a subsidiary that employs staff. The main target of the ATO legal actions has been “payroll” companies. The ATO has also taken action against directors for what the ATO considers Phoenix Company situations. The ATO also has a dedicated Phoenix Company team. Nowhere in the Corporations Law or the Tax Act is a Phoenix company defined. So there is a difficulty in deciding what is a Phoenix Company and what is not because of the failure of the Law to actually define a Phoenix Company. In that situation the position is much less clear. For example, what if the situation was as described above except that a full market price was paid from NewCo to OldCo. ![]() Whilst we can all agree that the Phoenix Company described above is a bad thing, there are situations that contain some of the elements described above but then vary in crucial aspects that may make it more difficult to describe the situation as a Phoenix. Secondly, the situation is grossly unfair for the competitors of the Phoenix Company – if a company is not paying its tax debts or trade creditors than its cost base is lowered, usually to such an extent that a competitor can’t match its pricing.ĬALL US NOW FOR CONFIDENTIAL, FREE ADVICE But it can be confusing Firstly, there is the financial loss suffered by the creditors of the OldCo when they go unpaid. The situation as described is a bad thing for two main reasons. OldCo probably enters liquidation and leaves a number of creditors unpaid.The assets of OldCo are transferred to NewCo and no consideration is paid for those assets.A new company, which we call “NewCo”, begins trading as an identical business from the same location, with a similar trading name as another company, which we call “OldCo”.The most common scenario painted is when: The general concept is that a Phoenix Company is a company that “rises from the ashes” of a failed company. What is not so clear, is what exactly is a Phoenix Company.ĬALL US NOW FOR CONFIDENTIAL, FREE ADVICE A typical Phoenix Company The term “Phoenix Company” is one often used by Legislators, and the ATO and is often the focus of campaigns by regulators and law reform. Why do the powers that be not like Phoenix Companies? ![]()
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