A proposal to address the impact of fraudulent phoenix activities on unremitted superannuation guarantee contributions in Australia

Abstract

Phoenix activity involves the ‘deliberate, systematic, liquidation of a company to avoid the payment of liabilities, including employees’ wages, superannuation, outstanding taxes and business creditors. The company then ‘rises from the ashes’ conducting the same business free from all debts under a new or similar identity. Fraudulent phoenix activity typically occurs when individuals use limited liability companies to accumulate debts that are usually owed to the Australian Taxation Office (ATO), then liquidate the companies concerned and then carry on the same business through a newly formed company. The effect is that in almost all cases the companies placed into liquidation, have no assets. Fraudulent phoenix like activity isn’t a new phenomenon and was associated with the ‘bottom of the harbour’ tax avoidance schemes prevalent in Australia during the 1970s. The Victorian Parliament Law Reform Committee (VPLRC) tabled a report in 1994 which had several recommendations dealing with and detecting phoenix activity. This report was the catalyst for the ATO to launch the ‘Phoenix Project’ in 1998, with a focus of tracking companies involved in fraudulent phoenix activity.