This article is from the Australian Property Journal archive
THE Australian Taxation Office has won a landmark case after the Federal Court disqualified a Sydney liquidator specialising in the retail, manufacturing, property and construction industries from practising for a period of 10 years.
This is the first time the ATO has initiated Federal Court proceedings using Corporations Act provisions to take on the facilitators of schemes designed to avoid paying tax.
Illegal phoenix activity is when a company is deliberately liquidated, wound up or abandoned to defeat creditors, leaving its debts behind. Its assets are shifted to the controllers or to a new entity that begins trading, often under a similar name.
ATO assistant commissioner Aislinn Walwyn the case demonstrates that the ATO will take firm action to hold facilitators of illegal phoenix activity to account and take steps to remove them from the business environment where they have acted negligently.
The ATO leads the 37-member Phoenix Taskforce, which aims to deter and reduce illegal phoenix activity.
The court found David Iannuzzi, the sole director of Veritas Advisory Pty Limited, had been systemically negligent in his responsibilities as a liquidator over an extended period of time and across more than 23 companies.
The court found Iannuzzi’s ‘systemic conduct was certainly reckless; it fell very far short of the conduct that was to be expected of him; it demonstrates that he failed to observe the obligations of candour on him with regard to disclosing relevant circumstances to creditors; it reflects poorly on his character; and it demonstrates that he is not a fit and proper person to remain registered as a liquidator.’
“Illegal phoenix activity affects the whole community. It rips off creditors and employees and reduces the amount of revenue that could be collected to fund essential community services,” Walwyn said.
A report by PricewaterhouseCoopers in 2018 estimated the economic impact of potential illegal phoenix activity to be up to $5.13 billion per year. This includes small businesses and individual contractors or suppliers who are left unpaid, employees who haven’t been paid their entitlements.
The ATO victory comes as the Victorian government pledges to target phoenix companies in the building and construction sector.
The government was prompted to act in light of the flammable cladding and building defects crisis, with homeowners unable to pursue builders and developers.
A report released earlier this year by Deakin University’s senior lecturer Nicole Johnston with Griffith University’s associate professor Sacha Reid, found apartment owners face potential ruin because they are unable to pay for the repairs.
“When defects are identified, it is difficult to seek recourse several years after construction because it is common practise for small and large development and building companies to create single purpose companies or “two dollar companies” for each new project,” the report said.