By Steve Marsten
Well the Government plans to finally crack down on illegal phoenix companies. The legislation has been passed on Wednesday last week. It includes a surprise move to introduce “director identification numbers”.
Phoenix companies have long been a problem for the economy, and many SMEs have lost out due to the questionable practice of avoiding debts and liabilities by transferring assets to a new company. Government figures put the annual loss at up to $3.2 billion.
Under the newly unveiled plans, all company directors will be issued director identification numbers or DINs. Interestingly, the DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and associated people.
In addition to the new ID numbers, the government is proposing a raft of measures it hopes will reign in the practice and reduce the burden on businesses and employees. These include:
- Establishing specific phoenixing offences
- Create a special ‘phoenix hotline’ as a single point of contact for businesses, employees and consumers to report such activity
- Powers to enable the ATO to recoup tax liabilities by recovering a security deposit
- Making directors personally liable for GST liabilities
- Banning related entities of a phoenix operator from appointing liquidators
This is great provided the action to stamp out illegal activity does not inadvertently discourage legitimate entrepreneurship.
You see it happens to be a fact of life that some legitimate businesses fail; people need to be able to pick themselves up and start again. We need our laws to deter illegal behaviour while encouraging healthy risk taking and innovation.
The new laws are welcome however they don’t address a bugbear that we see regularly - unfair preference laws where good businesses that are paid for goods and services are asked for their hard earned money back during liquidation. This issue is still to be addressed.
For more information feel free to ring our team at Sothertons on 4972 1300.