Combatting Illegal Phoenixing: Government’s Continued Commitment

The Australian Government has reaffirmed its commitment to addressing illegal phoenixing activities by extending and enhancing the Phoenix Compliance Program in its mid-year budget update released on 18 December 2024.

As noted in the Parliamentary Joint Committee on Corporations and Financial Services Corporate insolvency in Australia Inquiry report (PJC Inquiry), ‘Illegal phoenixing causes significant harm to the community. Employees miss out on wages, superannuation and entitlements, suppliers and subcontractors are left unpaid, and governments miss out on tax revenue’.

In its submission to the PJC Inquiry, ARITA highlighted that substantially more enforcement actions need to be taken against directors and facilitators of illegal phoenixing and is pleased to see the Government’s ongoing support for the work being spearheaded by the Australian Taxation Office (ATO).

ARITA’s views were supported by the PJC Inquiry, which recommended that the regulation and active enforcement of untrustworthy pre-insolvency advisors be improved in the near-term and that the nature and extent of the harm posed by ‘untrustworthy pre-insolvency advisors’ be undertaken as part of a comprehensive review of Australia’s insolvency system (recommendation 15).

While the government’s commitment to tackling phoenixing is commendable, it is notable that the decision to extend and enhance the Phoenix Compliance Program was made without consultation.

Transparency and stakeholder engagement remain vital to the success of such initiatives. A more inclusive approach could enhance trust and ensure that the measures are not only effective but also fair and practicable for all affected parties.

Funding and Measures

To support this initiative, the government has allocated $66.9 million to the ATO and $1.1 million to the Australian Securities and Investments Commission (ASIC) for the next phase of the program, extending it for two years starting 1 July 2025. These measures aim to:

• Strengthen the capacity of the ATO and ASIC to detect and prosecute phoenixing activities.
• Protect honest businesses and workers from the damaging impacts of phoenix operations.
• Ensure that companies comply with their obligations, thereby fostering a more equitable commercial environment.

Financial Impact

The enhanced measures are projected to increase receipts by $278.2 million and result in $150.9 million in payments over five years, starting in the 2023–24 financial year. These figures highlight the program's effectiveness in recovering revenue lost to phoenix activities, including through additional GST payments to states and territories amounting to $80.9 million.