Fighting for Subbies Rights
The following description of illegal Phoenix activity is taken from the ATO's website.
Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. This illegal phoenix activity impacts the business community, employees, contractors, the government and environment, including:
- non-payment of wages, superannuation and accrued employee entitlements
- getting an unfair competitive advantage over other businesses
- non-payment of suppliers
- loss of government revenue and increased monitoring and enforcement costs
- avoidance of regulatory obligations.
Phoenix activity doesn't just impact those people directly affected. It deprives the whole community of necessary funds that could have contributed to hospitals, roads, education and other essential services. We are committed to stamping out this activity and prosecuting the worst offenders to the full extent of the law.
Current building company liquidation
SubbiesUnited has provided anecdotal and hard evidence to the QBCC of rarely used Phoenix companies lying dormant until the time is right.
Currently there is a building company which was liquidated this month. The director of the company has so far novated half of it's 35 projects to a related entity. That entity is a QBCC licensed building company where the directorship and secretariat of the company was transferred from the principal, into the principals wife's name back in 2012.
This morning we were told that the director of the liquidating company who is not a builder (you don't need to be a trained builder to own a building company), has;
- a 150k motor vehicle (bought from assets of the liquidated building company)
- has just sold his home for 1.7 million dollars (built from assets of the liquidated company)
- has a 700k holiday home (built from assets of the liquidated company)
- a 70k speed boat (bought from assets of the liquidated building company)
- two jet skis (as above)
- is building a new house (valued at 150k but actual cost is 450k - as above)
- has two investment properties (starting to sound like a broken record).
Yet he still found the need to liquidate his building company and subbies and suppliers money with it. Nothing like a good, old fashioned cleansing of creditors debt, is there Mr Shonky Building Company Owner?
But wait, theres more, some oldies but goodies, here are some other ways they used company funds to pay for their expensive lifestyles;
- their grocery shopping was done using his company credit card, he would then put it down as staff amenities
- all his alcohol was purchased the same way
- when he furnished his new holiday home, surprise surprise, it was entered into the company accounts as "display home furniture"
- gifts from Myer were put into the books as staff gifts but unfortunately, no gifts were given to the staff.
The director of the liquidated company is not a builder, he is an ex used car salesman. He used a nominee for his license and we are told that for years, he has paid a wage to both his wife and his mother, despite neither of them working in the business.
All these horrendous expenses must have been a weight on his mind so his decision was to make hard working subcontractors crash and burn.
Further to that;
- his wife the director of the Phoenix company is not a builder
- until recently, she did not work in the building industry
- the Phoenix uses a different nominee builder to the liquidated company
- the nominee builder was appointed the day before the liquidation of the old company
- both entities use the same business address.
In the first creditors report the company has liquidated over 1 million dollars that was due to;
- subcontractors and suppliers
- the ATO and the Office of State Revenue
- staff entitlements including superannuation.
You might say who cares about the ATO and the Office of State Revenue. We should all care because fraud of this type increases the tax burden on all honest business people and the community at large.
What is the difference between this building company liquidation and the others we have dealt with this year?
Nothing, they are all the same but in this case, information is flooding in because he did not just burn subbies, he burnt employees and many others who trusted him.
When talking to the QBCC about Phoenix activity including this one, among other things we were told;
"What I can confirm is that if we identify evidence to suggest illegal phoenix activity, we will refer those to the appropriate agency. You will note I refer to the term illegal phoenix versus your term phoenix. There is a difference".
In QLD, no phoenix company that I am aware of has ever paid an actual consideration for the assets including projects of the related insolvent entity. In QLD, no phoenix company that I am aware of has paid out the creditors of the old company.
There has never been a legal building phoenix company in QLD, if I am wrong, please tell me which one.
The QBCC cop a lot of flack, often called a "toothless tiger" but the problem facing the QBCC under the QBCC Act is they don't have the power to shut down a Phoenix company but they can refer it to the relevant authorities for investigation.
The other entity that can refer evidence to the relevant authorities are the Liquidators but can someone please tell me the last time that happened?
Liquidators, hello, I am listening?
Relevant Authorities
The authorities who can investigate are;
- ASIC
- The Queensland Police Force
- Federal Police
None of them will investigate unless they know about it via a referral from the QBCC, ASIC, a Liquidator or a member of the public.
Points that need to be made in regard to Phoenix companies with a QBCC license are;
- under the QBCC Act there is no such crime as Phoenixing a company
- if the new licensed company has not committed any offences the QBCC cannot act
- if the new company does not have a blot on its record, the QBCC cannot act
- provided the new company meets the legislative criteria, it is entitled to all licences and qualifications so the QBCC cannot act
- Therefore, to my knowledge, there are no legal grounds for cancelling its licence under the QBCC Act.
Think of the Phoenix as a child born of criminal parents, It is a new entity free of all that has gone before it and cannot be held responsible for the sins of the parents, or can it?
We believe the criminal activity rests in the liquidation of the old company and the non payment for assets transferred to the new company and this is the area that needs to be investigated.
Thorough investigation of every liquidation
What needs to happen in every building liquidation, to ensure a complete and thorough investigation of the liquidating company, is for the creditors to unite to have the builder appointed liquidator changed to a liquidator appointed by the creditors.
This is done by voting at the first creditors meeting or sending in a proxy vote with a proof of debt form. We can help creditors with that like we did in two recent builder liquidations.
Why?
As reported by Sydney Insolvency News on 5th August 2016, ASIC’s Adrian Brown unveiled his own cache of incendiaries by implication (at the ARITA Conference). He told those gathered in the Sister Cities room that of the approximately 220 insolvency firms in Australia, 7 per cent, or less than 16 firms, win 51 per cent of all creditors voluntary liquidations (CVLs).
“If these firms are not differentiating on price then what is the point of difference for these firms winning so much work?”
Dare we say it, SubbiesUnited believes the answer might be as simple as an easy time for the liquidating builder through it's pre insolvency advisor and let's not forget a cosy and extremely lucrative referral network between pre insolvency advisors, liquidators and lawyers where they scratch each others back and tickle each others arses with a feather.
The question has to be asked, how does a used car salesman get to own a building company turning over 60 million dollars a year?
In any liquidation we are involved in, SubbiesUnited will gather as much evidence as possible, preserve that evidence and give it to the relevant authorities in the hope that one day, a liquidating building company director will go to jail.
Then and only then will there be a deterrent to other shonks who want to continue down the path of liquidating subbies money away to support their expensive lifestyles, a lifestyle that hard working subbies can only dream about.