The Australian Securities & Investments Commission (ASIC) recently announced a targeting of company directors with a history of company failures for possible illegal phoenix activity.
In essence the term ‘phoenix’ originates from Greek mythology as the long lived bird constantly regenerated or reborn. Commercially however, in the area of insolvency, illegal phoenix activity relates to transferring of assets from one corporate entity to another for no (or less than) proper consideration to the detriment of employees and trade creditors.
Phoenix activity is typically associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The director then places the initial company into administration or liquidation with no assets to pay creditors.
ASIC Commissioner Greg Tanzer stated that, ‘Illegal phoenix activity has far reaching and unfair consequences’. Research compiled for the ASIC state that such activity costs the Australian economy more than $3 billion annually.
In their announcement the ASIC Commissioner states, ‘We are looking at failed companies, mostly within the small business sector, from July 2011 onwards where there have been allegations of illegal phoenixing’. ASIC is said to be focusing on companies involved in building and construction, labour hire, transport, security and cleaning. A target group of 1,400 companies and approximately 2,500 individuals have been identified so far.
