An Efficient Collaborative Mechanism To End Phoenix Company Behaviour

The Commonwealth government is suffering a shortfall in revenue from uncollected tax obligations in the amount of approximately three billion dollars annually. This shortfall primarily arises because of phoenix company behaviour. A Phoenix company is an incorporated legal entity, (commonly referred to as a two-dollar company) that runs up debts, including monies owing to the Australian Taxation Office (ATO), and then is put into an external administration, usually a voluntary administration, with the business ending and the company being eventually liquidated. If the process is handled by a “friendly” liquidator, then there are few if any consequences for the director/s of that company, leaving them free to start up another company, that to all intents and purposes is the same business with a different name, allowing the same avoidance behaviour to be repeated.

This project will research, propose and test a collaborative model to enable enforceable corporate governance strategies to combat the Phoenix company problem in Australia. It will do this via an inclusive interdisciplinary approach around phoenix company behaviour while demonstrating the shortfalls that single discipline (accounting, law, economics) attempts at regulation (both via professional standards and operation of the law and regulatory agencies) have made. It is expected that the research in producing the governance model will provide an output of reducing compliance costs associated with chasing (and sometimes collecting) tax obligations and other creditor debts arising from the operation of Phoenix company behaviour.