On 12 September 2017, the Hon Kelly O'Dwyer MP, Minister for Revenue and Financial Services, announced the Government's plans to crack down on illegal phoenixing activity (ie, the stripping and transferring of assets from one company to another to avoid paying liabilities) and ensure that those involved face tougher penalties.
As part of the reform package, the Government is engaging with key stakeholders on the introduction of a Director Identification Number to enable the tracking of directors and the mapping of their relationships with other individuals and companies.
In addition, on 28 September 2017, Treasury released a Consultation Paper – Combatting illegal phoenixing which seeks views on proposed reforms to corporations and tax laws to deter and disrupt the core behaviours of phoenix operators, including non-directors such as facilitators and advisers, while minimising any unintended impacts on legitimate businesses and honest restructuring.
Reforms proposed in the Consultation Paper include:
- the establishment of a dedicated phoenix hotline;
- specific phoenixing offences to better enable regulators to take decisive action against those who engage in illegal phoenix activity;
- preventing directors from backdating their resignations to avoid personal liability or from resigning and leaving a company with no directors;
- restricting the rights of creditors related to a phoenix operator to vote at creditors’ meetings and “stack” votes;
- the extension of the penalties that apply to those who promote tax avoidance schemes to capture advisers who assist phoenix operators;
- making directors personally liable for GST liabilities as part of extended director penalty notice provisions; and
- stronger powers for the ATO to recover a security deposit from suspected phoenix operators.
In addition, the Government is consulting on the best ways to identify high risk individuals who will be subject to new preventative and early intervention tools including:
- a next-cab-off-the-rank system for appointing liquidators;
- allowing the ATO to commence immediate recovery action following the issue of a director penalty notice (without having to wait 21 days); and
- allowing the ATO to retain tax refunds.
Submissions on the Consultation Paper are due by 27 October 2017.