Most Read Contributor in Australia, September 2016
ASIC and the ATO have the construction industry firmly in their
sights as they crack down on 'phoenix operators'. The term
phoenix operators refers to companies that suddenly liquidate to
avoid paying debts to creditors, employees and the tax office, but
then transfer their assets to new enterprises and rise from the
ashes to begin trading again almost immediately.
In particular, authorities are focusing on the use of fraudulent
statutory declarations. Phoenix operators submit false declarations
as evidence that their subcontractors have been paid to claim
payment from principals. However, upon liquidation, outstanding
debts to employees and subcontractors are often exposed.
ASIC Commissioner Greg Tanzer has warned that directors who take
part in phoenix practices and make fraudulent statutory
declarations expose themselves to serious consequences. 'While
false statutory declarations and fraud matters are matters for
other regulatory and enforcement agencies, company officers who
knowingly make a false statement regarding payments to creditors
may find themselves facing criminal or civil action by
What this means for your business
Everyone involved in the construction industry needs to ensure
that they are protected from unscrupulous phoenix operators.
Builders and suppliers who falsely declare they have paid their
subcontractors create cash flow issues which have ripple effects
throughout the entire industry. This practice exposes parties down
the supply chain to non-payment for work undertaken or materials
delivered, placing additional financial stress on their businesses
and potentially their own subcontractors and suppliers.
Phoenix operators create a separate threat to their competitors
as their business model means that they can tender uneconomically
for new business and undercut the market, then walk away and write
off their debts when the project collapses.
Unrealistic tender prices are of course seductive to principals
but are often ultimately deleterious as when a contractor fails the
principal will inevitably have to pay a premium in order to get
another contractor to take over the job. A whole host of issues are
likely to arise at this point including liability for defective
work, transfer of risk in the work and consequential insurance
problems, personal property securities, payments due to
subcontractors, and the need to access bank guarantees.
Subcontractors and supply chain companies can protect themselves
through their payment terms and security regimes in their contracts
as well as relying on the statutory mechanism under the
Personal Properties Securities Act 2009 (Cth) to protect
their security interests where appropriate.
Principals and developers, on the other hand, need to ensure
that appropriate contractual terms are in place to minimise the
effect of any claim for a lien or a security interest on unattached
components or equipment used in their projects.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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