As economic conditions tighten across Australia, insolvency practitioners, creditors, and regulators are increasingly focused on a familiar threat: phoenix activity.
While business restructures and business rebirths are a legitimate part of a healthy economy, the line between lawful restructuring and illegal phoenixing can become blurred when financial distress intensifies.
With high interest rates, rising fuel costs, persistent labour shortages and reduced consumer spending continuing to place pressure on businesses, the risk of illegal phoenix activity is likely to grow. For directors, advisers and creditors, understanding this risk has never been more important.
What is a phoenix company?
The term "phoenix company" derives from the mythical phoenix bird, which rises from its own ashes. In a business context, a phoenix arrangement typically involves the continuation of a business through a new entity following the failure of an existing company.
Importantly, not all phoenix activity is illegal.
A lawful business restructure may involve the sale of a business or its assets through a formal insolvency process, with assets transferred at market value under the supervision of an independent insolvency practitioner. Such transactions can preserve jobs, maximise returns to creditors and allow viable businesses to continue operating.
Illegal phoenix activity occurs when directors deliberately transfer assets from an indebted company to a new entity, often for little or no consideration, leaving behind unpaid creditors, tax liabilities and employee entitlements. The old company is then abandoned, liquidated, or otherwise left unable to satisfy its obligations while the business continues under a new corporate shell.
ASIC describes illegal phoenix activity as occurring when a new company continues the business of an existing company that has been liquidated or abandoned to avoid paying outstanding debts, including taxes, creditor claims and employee entitlements. [asic.gov.au]
Why economic conditions matter
Historically, phoenix activity tends to increase during periods of economic stress.
For some directors, particularly those of small and medium-sized enterprises, the temptation to walk away from accumulated debts and restart in a clean entity can become increasingly attractive.
Unfortunately, this behaviour shifts financial losses onto employees, suppliers, subcontractors, landlords and taxpayers. It also creates an unfair competitive advantage, allowing phoenix operators to undercut compliant businesses that meet their tax, employee and creditor obligations.
The Australian Taxation Office estimates that illegal phoenix activity costs the Australian economy approximately $4.89 billion annually through unpaid creditor claims, lost employee entitlements and tax revenue. [ato.gov.au]
Industries most at risk
While illegal phoenix activity can occur in any sector, regulators continue to identify elevated risk within industries characterised by low barriers to entry, significant subcontracting arrangements and mobile assets.
The ATO has identified particular concerns within:
Construction and property development.
Labour hire.
Security services.
Transport.
Agriculture and horticulture.
Mining-related service industries. [ato.gov.au], [ato.gov.au]
Construction continues to attract significant scrutiny due to the prevalence of subcontractor arrangements and the cascading effect that unpaid debts can have throughout supply chains.
The regulatory response
The Australian Government's response to illegal phoenixing has intensified significantly over the past decade.
The Phoenix Taskforce, first established in 2014, brings together federal, state and territory agencies, including the ATO, ASIC, Fair Work Ombudsman and numerous other government bodies. Using sophisticated data matching and intelligence-sharing systems, the Taskforce identifies and targets suspected phoenix operators. [ato.gov.au], [anao.gov.au]
Recent legislative reforms have provided regulators and liquidators with stronger enforcement tools, including:
New offences relating to creditor-defeating dispositions.
Powers allowing ASIC to recover assets transferred in certain circumstances.
Restrictions on backdated director resignations.
Prohibitions on resignations that leave companies without directors.
Expansion of the Director Penalty Notice regime to include GST liabilities in specified circumstances.
The focus is no longer solely on directors. Advisers, facilitators and others who assist with creditor-defeating transactions may also face significant penalties.
ASIC warns that pre-insolvency advisers who encourage or facilitate illegal phoenix activity can be exposed to the same consequences as directors where they aid or procure unlawful conduct. [asic.gov.au]
Warning signs for creditors
Creditors should remain vigilant for common indicators of illegal phoenix activity, including:
Requests to redirect payments to a newly incorporated entity.
A company changing its name while continuing to trade through a similar business.
Directors with histories of multiple failed companies.
Unexplained asset transfers shortly before insolvency.
Businesses continuing almost unchanged under a new company name.
Persistent non-payment of taxation obligations, superannuation or supplier accounts.
The earlier concerns are identified, the greater the prospects of preserving recoveries and enabling investigations by insolvency practitioners or regulators.
The difference between failure and misconduct
Business failure is not illegal.
Every economic downturn produces businesses that fail despite the best efforts of directors, employees and advisers. Australia's insolvency framework recognises commercial risk and provides legitimate restructuring mechanisms, including voluntary administration, small business restructuring and liquidation processes.
The distinction lies in the conduct of directors. Where assets are transferred at undervalue, creditors are deliberately prejudiced, or the corporate structure is manipulated to avoid legitimate obligations, phoenix activity moves from business rescue into misconduct.
Looking ahead
The combination of ongoing economic uncertainty and rising insolvency numbers makes phoenix activity a continuing concern for regulators and insolvency professionals alike.
For legitimate businesses, the message remains clear: early intervention and transparent restructuring provide the best opportunity for survival. For those contemplating shortcuts through creditor-defeating transactions, the regulatory environment has never been more sophisticated or more heavily resourced.
The phoenix may symbolise rebirth, but in today's regulatory landscape, rising from the ashes at the expense of creditors, employees and taxpayers is becoming increasingly difficult.
References
Australian Taxation Office, Illegal Phoenix Activity (updated 13 October 2025).
Australian Taxation Office, Phoenix Taskforce (updated 21 May 2026).
Australian Securities and Investments Commission, Illegal Phoenix Activity.
Australian Securities and Investments Commission, Concerns About Illegal Phoenix Activity (INFO 212).
Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020 (Cth).
Australian National Audit Office, Addressing Illegal Phoenix Activity, Auditor-General Report No. 32 of 2018–19.
