A phoenix company is a commercial entity which emerges from a collapsed insolvent entity. The new company trades under the same or similar name and is able to present the appearance of business as usual to its customers.
The primary identifiers of phoenix activity include:
- The failed entity is formed with only a nominal share capital.
- The directors/managers/controllers of the failed and successor company are the same.
- The failed entity is trading whilst insolvent.
- The failed entity was operated to evade prior liabilities.
- The successor company trades with the same or similar name.
- Assets of the failed company are transferred at below market value to the successor company.
Although phoenix activity occurs in all sectors of the economy, it’s most prevalent in the building and construction industries. The 2003 Final Report of the Royal Commission into the Building and Construction Industry devoted a chapter to its practice in that sector of the economy.
The economic cost of phoenixing in Australia is estimated at $3 billion annually. This is made up of:
- $655 million for employees, in the form of unpaid wages and other entitlements.
- $1.93 billion for businesses, as a result of phoenix companies not paying debts, and for goods and services paid for but not provided.
- $610 million for government revenue, mainly as a result of unpaid tax.