ASIC's anti-phoenix powers under scrutiny

The auditor-general's office has identified the effectiveness of corporate regulator ASIC and the Australian Taxation Office in "addressing phoenix activity" as a potential topic of audit in the coming year.

The Australian National Audit Office, the body that assists the federal auditor-general, revealed in its annual Audit Work Program that the scrutiny on phoenix businesses could itself be scrutinised in the coming year.

"The main Australian Government entities responsible for taking action in relation to phoenix activity are [Australian Securities and Investments Commission] and the Australian Taxation Office," reported the ANAO. "An audit would examine the effectiveness of ASIC and the Australian Taxation Office in addressing phoenix activity."

Phoenix businesses evade debts to the tax office, trade creditors and employees by selling off assets to a new company to avoid payment, then liquidating the old entity. The new entity then conducts similar business to the old company, often with the same directors, while creditors are left out of pocket.

The Fair Work Ombudsman estimated that, in 2012, creditors were left out of pocket between $992 million and $1.9 billion, unpaid employee entitlements ranged between $191 and $655 million, and missing taxes were worth as much as $610 million.

[Related: What's the best way to deal with phoenix businesses?]

An audit would examine the success of the current systems in place to catch phoenix operators – including an ASIC investigations fund, the ATO's role in chasing debts, and a phoenix-specific cabal of government agencies.

ASIC maintains the Assetless Administration Fund, which finances preliminary investigations by liquidators into failed companies that have little to no assets. The corporate watchdog can then take action against directors if phoenix-like misconduct is found.

Directors that have been involved in two or more failed companies may be banned from further directorships.

The ATO's role is to ensure tax and staff superannuation guarantees are fulfilled, with the ANAO stating: "In certain circumstances [the ATO] is able to hold company directors personally liable for unpaid taxation or superannuation guarantee obligations."

ASIC and ATO are also members of the Inter-Agency Phoenix Forum, which facilitates information sharing and collaboration. The other members of that forum include the Australian Crime Commission, Australian Federal Police, Fair Work Ombudsman and the state revenue offices.

Anti-phoenix enforcement was in the headlines last month when the ATO combined with federal and NSW police to raid a dozen locations in Sydney. The unannounced visits sought evidence of misconduct not just from suspect businesses but also tax agents, lawyers and liquidators who may have colluded to allow phoenix behaviour.

"We are particularly concerned where third parties that are meant to be independent and transparent may be aiding dodgy business operators," ATO deputy commissioner Michael Cranston said at the time.

Any member of the public may report phoenix-like behaviour by phone on 1800 060 062, or online at ato.gov.au/reportaconcern.