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31 Aug 2016

ASIC and ATO raid illegal phoenix promoters


3 min

The regulators working together to target self proclaimed specialists!

A special taskforce has been set to blow apart the underbelly of Corporate Australia's illegal phoenix and tax avoidance schemes.

In August, The Australian Taxation Office and the Australian Securities and Investments Commission (ASIC) with the assistance of the Australian Federal Police have executed six search warrants as part of an investigation into alleged illegal phoenix activity on the Gold Coast in Queensland. The Sydney Morning Herald (SMH) reported that the investigation included raids of 13 Melbourne and Brisbane offices and homes as part of a major investigation into corrupt bankruptcy businesses.

ATO Deputy Commissioner Michael Cranston was quoted in the SMH article as saying:

"These visits are part of an ongoing investigation into the activities of a firm of pre-insolvency advisors and their involvement in encouraging and facilitating illegal phoenix activity, evading GST and failing to pay tax on $22 million of unreported income."

The Accountants Daily reported that Mr Cranston has also stated that:

"Honest businesses and individuals suffer the most because debts to suppliers are left unpaid, employees are robbed of their superannuation entitlements, and the community is denied revenue to fund essential services."

Sources estimate that phoenix schemes cost more than $3 billion a year and leave thousands of businesses with unpaid debts of close to $2 billion.

In short, the economy, consumers and the public at large are taking on the burden while the advisors are being paid handsomely for their ‘bad advice’.

ASIC have taken action by commencing a direct campaign to company directors that are subject to a winding up application to warn them about untrustworthy advisors.

Its concerns, include that some advisors "may aid and abet directors in breaching their duties and promoting illegal conduct, (including illegal phoenix activity)."

In notifying all registered liquidators, ASIC advise that untrustworthy advisors' activities "undermines market confidence and reduces assets that might otherwise be available for creditors in a formal external administration".

ASIC's 'untrustworthy advisor' warnings signs include:

  • Contact 'out of the blue'.

  • A reluctance to provide their advice in writing.

  • Suggestions of destroying books and records or withholding or delaying providing them to the company’s liquidator, if appointed.

  • Suggestions of transferring company assets into another company without paying for them.

  • Recommending using a ‘friendly’ liquidator to wind up your company.

ASIC laments that directors taking this tainted advice might cause them to break the law or breach director duties, which can result in "large fines or even imprisonment". Further, taking 'bad' advice "can damage the claims of the company’s creditors". ASIC's advice also said, "However, by law a registered liquidator, if formally appointed to externally administer your company, cannot act for you personally or your adviser. They must only act on behalf of the company’s creditors".

ASIC is urging people to report such activity at its website.

What does Worrells say about all this?

Well, firstly all of our registered liquidators are 'friendly' in the sense that they will treat directors with due respect and courtesy; however, they will always act in accordance with the Corporations Act. Given, we are directly, and increasingly, seeing the fallout from the 'bad advice', we believe we need to raise awareness (in as many ways possible) as to what constitutes sound advice; And to illuminate the importance of working with a good advisor.

Secondly, Worrells is thrilled to see the regulators and the law forcefully intervening in the underbelly of unlawful and monstrously damaging behaviour pertaining to illegal phoenixing and tax avoidance.

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