Government establishes phoenix activity hotline as cost to the economy each year hits $5 billion

The federal government’s taskforce against phoenix activity in business has today revealed the cost of the illegal activity on the Australian economy could exceed over $5 billion annually, as it unveils a new ‘hotline’ for anyone to dob in businesses they believe to be undertaking phoenix activity.

Phoenixing, or the act of deliberately liquidating a company to avoid liabilities and then re-establishing the company under a new name, has long been pinned as a blight on the Australian economy. In 2012, the government established the Inter-Agency Phoenix Taskforce, a joint effort by government bodies including the Australian Securities and Investments Commission, the Australian Taxation Office, the Fair Work Ombudsman, Australian Federal Police, and all state revenue offices.

At the time, a report from PricewaterhousCoopers, commissioned by the government, estimated the annual cost of phoenix activity was somewhere between $1.8 billion and $3.2 billion. However, the 2018 report’s figure of $5.19 billion represents a significant increase.

From that number, the largest direct cost is on business itself, with parties such as unpaid trade creditors estimated to be losing out up to $3.17 billion. Next in line was the government, which is estimated to lose $1.66 billion in unpaid tax each year thanks to phoenix activity.

Finally, employees were also found to be significantly affected, losing up to $298 million in unpaid wages and superannuation.

With these burgeoning numbers, the government’s next plan of attack is the newly established Phoenix Hotline, revealed today as a way for Australians to flag potential phoenix activity anonymously and directly.

Financial Services Minister Kelly O’Dwyer launched the hotline, which will allow employees, creditors, competing businesses, and anyone in the general public to anonymously tip off the taskforce with information or concerns around potential phoenix companies.

“The new Phoenix Hotline will make it easier to report suspected phoenix behaviour directly to the Australian Taxation Office so they can pursue those who are doing the wrong thing,” O’Dwyer said in a statement.

“It will enable timely action to be taken against companies and their directors, safeguarding employee entitlements like wages and superannuation, and ensuring taxes are collected for government to provide the essential services Australians rely on.”

The hotline can be called on 1800 807 875 or information can be submitted online via the ATO website.

Concerns over innocent businesses being targeted

Speaking to SmartCompany, Council of Small Business Australia (COSBOA) chief executive Peter Strong welcomed the latest findings and action from the taskforce, saying many members of his organisation regularly reach out with concerns about phoenix activity.

Strong isn’t surprised by the whopping $5 billion figure from the taskforce, saying its long been an area that has cost business and the government money. More company directors need to be brought to account, he says.

“It hurts suppliers, employees, and consumers, as it’s very disturbing for workers to turn up and suddenly find they have no job anymore, and no super or pay,” Strong says.

“And suppliers just turn around and find they’re not getting the $30,000 they’re owed.”

While Strong views the hotline as a good thing, he does have some reservations about potential abuse, saying COSBOA will seek to work with the government to ensure innocent businesses are not taken to task unnecessarily. However, he acknowledges the government can’t afford to go soft in an area as problematic as phoenixing.

“We need to make sure they don’t punish people that are innocent. That’s always the thing about hotlines, we do get concerned about innocent businesses being affected,” he says.

“There is a fear in the public service of punishing innocent people though, and in some regards, I think the industry itself has been more aggressive about this than government agencies.”

As for a more long-term solution, Strong is hoping with technology evolving rapidly, there will eventually be a system whereby dodgy company directors are flagged immediately after registering a new business and he welcomes the government’s plans to bring in director IDs for business owners.

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