Business needs to be increasingly alert for signs of illegal phoenix activity, the ATO said, as it is widespread and can be hard to detect.

The assistant commissioner for the Phoenix and Evasion Program, George Montanez warned that phoenixing could occur in any industry or location, and put other businesses at a disadvantage.

Illegal phoenix activity occurs when a new company, for little or no value, continues the business of an existing company that has been liquidated or otherwise abandoned to avoid paying debt.

Mr Montanez said the best protection against illegal phoenix activity was “knowledge defence”. 

“Warning signs may include not receiving pay slips or super payments and being given suspiciously low tenders or quotes for jobs,” he said in a recent ATO Tax Invoice podcast.

“You should also keep an eye out for suspicious behaviour and make sure you do thorough background checks on who you’re going into business with.”

Mr Montanez said some of the common indicators included serial liquidations.

“They do it yearly and across a number of months. They can simply just walk away from the company and then start up a new company, and they walk away from that company leaving creditors behind,” he said.

“Sometimes they inappropriately transfer company assets so that they can’t be sold to pay for creditors or to use in a new business.” 

Mr Montanez said it was hard for businesses to detect when phoenix operators are doing the wrong thing.

They would use strategies such as fake directors otherwise known as straw directors, to hide who is really in control and try to protect the main perpetrator.

“Sometimes these straw directors are quite vulnerable people that don’t know what they’re getting themselves into,” Mr Montanez said.

“And of course, there’s the non-payment or mistreatment of workers. Not paying workers compensation, unpaid wages, super and the non-payment of taxes.

“However, sometimes employees, subcontractors and suppliers find it hard to identify this while it’s happening in front of them.”

Mr Montanez said to better protect against phoenixing for employees, businesses should closely examine their payslips.

“Does it have a different company name to the one that they thought they were working for? Are they receiving a payslip? If they’re not getting a payslip, then why aren’t they getting a payslip?” he said.

”Do they frequently change the company’s ABN or directors but nothing else changes? A subcontractor or supplier might see that the company name is changing frequently. 

”That means they may even continue to operate from the same premises using the same number.”

Mr Montanez said these were all those little warning signs that indicated there was an illegal phoenix operator behind those companies.

“Another indicator is really, really suspiciously low tender or quotes that sort of go lower than everybody else,” he said.

“You may get a cheaper job there, but who is getting hurt in the process? And could it be you?”

Mr Montanez said it was really important to always do extensive research on who you are doing business with or who you’re working for if you’re an employee.

Businesses could do searches on the company and its directors to see if there’s any information or news online.

“You can see if any of the directors or persons in control, because it may not be a director of a company that has been bankrupted or been associated with liquidated companies,” he said.

“Not all bankruptcies as I’ve discussed, or liquidations are necessarily illegal phoenix activity. But you’re looking for that serial or cyclical pattern.

“You can also do credit checks. And you can even ask for proof that the company has registered for tax and paid its tax obligations such as GST, PAYG, etc. If you’re an employee, make sure you’re getting payslips.”

Mr Montanez said businesses should also proactively report suspicious behaviour to the ATO. 

“This intelligence can be the missing piece that helps us in an investigation,” he said.

“We get a lot of intelligence from the community. It is looked at. And I can say that we’re dealing with cases where it’s been from community referrals.”

Tony Zhang 
02 May 2022

accountantsdaily.com.au