Confidential ATO data shows phoenixing on the rise

O'Dwyer

Phoenix activity growing: Financial Services Minister Kelly O’Dwyer

More than 20 per cent of liquidations could involve illegal phoenix activity according to confidential Australian Tax Office (ATO) data divulged this week by Minister for Financial Services Kelly O’Dwyer, who also laid bare the inadequacy of efforts to curb the practice and eradicate complicit liquidators during a speech to Parliament on Wednesday.

The Member for Higgins addressed the House of Representatives on the underlying purpose of the Treasury Laws Amendment (2018 Measures No. 1 Bill) 2018.

In illustrating the levels of GST avoidance perpetrated by property developers who liquidate their companies after stripping assets O’Dwyer quoted ATO data that is not publicly available.

“…. phoenixing to avoid paying GST has grown significantly over the last decade,” she said. “According to ATO data, over the past five years more than 3,700 individuals have been identified as engaged in this sort of activity.

“These individuals controlled over 12,000 insolvent entities responsible for $1.8 billion in debt written off. The insolvent entities also claimed $1.2 billion in GST credits between 2013 and 2017,” the Minister said. The Minister’s office confirmed to Sydney Insolvency News that the figures have not been publicly released.

To put that 12000 insolvent entities figure in context, the latest Australian Securities and Investments Commission (ASIC) data for total external administrations (Exads) reveals that in the five years to 2016/17, almost 59,000 formal insolvency appointments were made.

Based on the ATO figure of 12,000 insolvent entities having some whiff of a phoenix about them then about 20 per cent of the total could involve conduct by a director or directors, aided and abetted by liquidators, designed to avoid tax and defeat creditors.

Then strip out receiverships and official liquidations which don’t lend themselves to phoenixing and 20 per cent starts to look ultra-conservative.

Although O’Dwyer didn’t share how much the suspicious insolvent entities had claimed in GST over five years, it’s a fair bet that if the $1.8 billion in forgone debt is added to the $1.2 billion in falsely claimed credits between 2013 and 2017, then just one class of phoenix activity has cost taxpayers well north of $3 billion in that time.

Yet the ATO’s public position on phoenix activity could scarcely be more at odds with the scenario O’Dwyer depicted using the ATO’s own numbers.

“Our approach in tackling illegal phoenix activity continues to pay off,” the ATO says on its website.

“We have a number of successful prosecutions that deal with and deter criminal behaviour and enable us to collect the taxes owed to the Australian community,” the ATO also states on its website.

“In 2015–16 we conducted almost 1,000 audit and review cases involving phoenix behaviour, raising $250 million in liabilities.”

Pay off? Well, perhaps for dodgy directors and their accomplices among the registered liquidator population and the underbelly of pre-insolvency advice.

SiN asked the ATO how it justified telling the public that its “approach in tackling illegal phoenix activity continues to pay off” when its own confidential data indicated that the problem was growing.

“The Phoenix Taskforce is a key component of our approach to addressing fraudulent phoenix activity,” the ATO said.

“The Taskforce was established to bring together government agencies to share intelligence, and identify, design and implement cross-agency strategies to reduce and deter phoenix activity.

“We have developed sophisticated data matching tools to identify, manage and monitor suspected illegal phoenix operators. We support businesses who want to do the right thing and will deal firmly with those who choose to engage in illegal phoenix behaviour.”

In regards to the numbers quoted by O’Dwyer the ATO confirmed their source was confidential.

“The data is only publicly available as the aggregate published in the Hansard you are referring to. The ATO cannot comment on the tax affairs of any individual or entity due to our obligations of confidentiality under the law.”

The ATO also refused to reveal what proportion of the $250 million in liabilities it has recovered.

Questions around how many registered liquidators had been identified among the 3,700 individuals said to be involved were also stonewalled.

ASIC, as the regulator with statutory responsibility for the registration and conduct of liquidators failed to respond to a series of question by publication deadline.

It states on its website that” “We rely on liquidators to provide us with reports about illegal (e.g. fraudulent) phoenix activity”. As is well known, the majority of suspicious activity reported to ASIC by liquidators is ignored because ASIC lacks the resources to pursue all but the most egregious of cases.

The other difficulty for ASIC is that it’s conflicted. Those new corporate entities, freshly registered by directors who stripped the assets from the insolvent entities, mean income and ASIC wouldn’t want to interfere with the volume of cash coming in, or for that matter with enthusiasm for enterprise being demonstrated by the Prime Minister’s entrepreneurs and innovators.

About the Author

Peter Gosnell
Sydney Insolvency News illuminates the practice of insolvency in Australia's largest city, highlighting the triumphs and failures of Sydney's registered practitioners and the accounting and legal professionals who work with them. SiN is produced by Peter Gosnell, former business editor and senior business reporter at The Daily Telegraph newspaper. During a decade-long career, your correspondent reported on such notable corporate collapses as HIH, One.Tel, Westpoint and Fincorp as well as some of the nation's highest profile bankruptcies and the investigations and prosecutions arising from Australia's most notorious instances of white collar crime.

7 Comments on "Confidential ATO data shows phoenixing on the rise"

  1. She didn’t actually mention “complicit liquidators” in her speech. There are a few liquidators that might fall into the category of being complicit in the practice but the two largest offenders, guilty of aiding and abetting phoenix operators are the ATO and the ASIC who despite thousands upon thousands of requests to fund investigations that might lead to further action, refuse to do so. This is called chickens coming home to roost. Perhaps in this case it is Bin Chickens that are doing the roosting?

  2. Authorities are clueless to the fact that ‘illegal phoenix’ activity is fraud. Investigation needs to be taken from ASIC and given to state, territory and federal police services to investigate and prosecute for fraud. ASIC has no intention of prosecuting anybody.

  3. The ATO & ASIC have no desire, or BALLS, to crack down on this activity. They expect honest moral liquidators to do their work for them, but with their bucket loads of finance to pay for these investigations and prosecutions they refuse to act. They would much rather chase after HIH, with bucket loads of funds to defend themselves, rather can secure convictions and make an example of less wealthy crooks. Meanwhile we pay through higher taxes, and don’t get me started on multi-national companies that pay no tax at all.
    I once asked ASIC to release the S533 reports of 8 previous liquidators of associated companies so I could join the dots and they refused hiding behind confidentiality. As for the ATO, you can present them with blinding evidence and they will hide behind confidentiality to avoid taking any action. Ask a very close associate of mine who got off scot free.
    The system is corrupt and ASIC is complicit in pursuing the small end of town of liquidators for minor compliance abnormalities while letting the big end of town off scot free. Ask a previous Ferriers incantation.
    I’m glad I’m out of this industry, the only thing I’m sorry for is that I pay excessive taxes for their incompetance.

  4. The honourable minister is adopting the position of “Doppia Faccia” clearly not going to let the cat out of the bag.
    Roll On 2018 / 19.

  5. Legislation to make recovery of pre-insolvency advisor’s fees from the advisor or any related entity of the advisor and recovery from the advisor or any related entity of the advisor of any measurable loss or undervalue of recovery due to the actions and advice of the pre-insolvency advisor, should be formulated.

    Thought will have to be given to onus of proof, measurement of loss and definition of associated entity but this personal liability by unqualified and unlicensed advisors should come close to extinguishing practises which outrage public opinion and get blamed on IPs! This will also provide much greater access to funds for all creditors.

  6. Dream on Daniel Moore

  7. I think that’s the most comments I have seen on a story in some time, obviously striking a nerve.
    ATO “tell them they are dreaming”.Cracking down on Phoenix activity is actually saying, cracking down on a crime once it has be committed, the real fix is to stop it.ATO recently sent an email out with tips on protecting yourself from Phoenix, its pretty clear from that the ATO have no idea.Good story .

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