Phoenixing in Australia, Essay Example

Introduction

Illegal Phoenix is an activity which involves the closing of one debt-laden company and progressing its business through another company which has no such debts. In Australia, the propensity of illegal phoenix activities has grown to considerable concern in depriving the Australian government revenue. However, Australia has defined extensive administrative and legislative tools which fight against this unlawful activity. The form of entity that owes the responsibility of tax collection by the Australian government greatly influences the ability of the Australian Taxation Office (ATO) and the state revenue offices to collect tax[1]. This paper will explore the illegal phoenix activity and the various implications of the event in Australia. Phoenix activity in Australia leads to failures which result in insolvency. As a result of the evasion of the liabilities by the phoenix companies, the employees in the company that dropped are left unpaid. There are also outstanding payments left to tax authorities, customers, businesses and creditors.

Body Corporations Act 2001

Section 293 of the Corporations Act 2001 talks about small propriety in a shareholder direction. In this section, the shareholders who have at least 5% of the votes in a small propriety company may give the company instructions to prepare the director’s report and financial report for the final year. The company is then required to send these documents to all the shareholders. All the shareholders must sign the direction given to the company and prepared within 12 months limit at the end of every fiscal year. Some of the specifications by the instructions by the shareholders may be that all the financial statements do not have to comply with all or some of standards set for accounting and that the report by the directors or part of the story may not require preparation. Lastly, the direction may need a financial statement auditing. This act was later amended and put to effect in 2018.  Part four of the amended bill outlines the range of corporate laws that now exist and actions which are obtainable to creditors such as the revenue authorities before signifying what can be done to enlarge them. Part four of this amended act concludes that reforms to the administration to the processes which are controlled by the ATO and Australian Securities and Investments Commission and improvements to existing corporate and tax legislation are apt to improve tax collections which are affected adversely by the illegal phoenix activity[2].

Corporations Amendment (Phoenixing and Other Measures) Act 2012

The Corporations Amendment (Phoenixing and Other Measure) Act 2012 consists of a short title, commencement, and two schedules. Each act is specifically outlined in a program in this act and amended as set in the applicable items in the plan of concern. Part 5.4C of the law talks about the winding up of a company by ASIC. The act states that the ASIC may order the closure of a company if it fails to file returns within six months and failure to lodge documents under this act within the last eighteen month. Besides, the ASIC may order the winding up of a company if it believes that the company does not carry out any business or due to the public interest. Winding up may also result from failure of the company to fail to pay review fee in full amounts at least twelve months after the deadline or if the company registration reinstated in the last six months[3]. Before executing the order, however, ASIC must give notice to the company, and the law must not be implemented if the matter is pending in the court. In section 489EB of the act, gives an outline of the consequences of winding up order by the ASIC[4]. If the ASIC orders the winding up of a company, the company is assumed to have passed through section 491 special resolution and therefore, it would wound up voluntarily[5]. If the ASIC orders the winding up of a company, it may delegate the execution work to a liquidator who distributes the company’s property and determining the amount paid to the liquidator. However, the appointment of a liquidator must not happen without a written consent

Vickers v Queensland Building and Construction Commission & Ors [2019] QCA 66

In this appeal for an unknown verdict by the Supreme Court of Queensland, Michael Anthony Vickers who is the appellant appeals to the court against Queensland Building and Construction Commission and Brett Bassett as the Commissioner of the Queensland Building and Construction Commission and Mark E Wilson. These are the first, second, and third respondents respectively and the Attorney General for the State of Queensland who is the intervener. The general appeal which originated from the supreme court of Brisbane [2018] QSC 199 (Crow J) whose verdict was delivered in 16 April 2019 by judges Holmes CJ and Gotterson and Morrison JJA dismissed and the appellant was to pay the respondents’ costs[6]. The appellant was the director of the two construction companies where one situated in South New Wales and the other in Queensland. The appellant received notice of cancellation of his builder’s license, and the New South Wales Company got into liquidation[7]. He claimed that the Midson New South Wales Company was not a construction company which appeared to the court as a phoenix company masked by the said Queensland Construction Company and hence the decline of the appeal to revalidate his license. The appellant sought relief against the cancellation of his license and included the proceedings in the Queensland Civil and Administrative Tribunal where he found a review of the verdict to give notices. However, the respondents[8] Filed a counter application requesting a dismissal of the proceedings under the judicial review Act 1991 (Qld) and the Uniform Civil Procedure Rules of 1999 (Qld). The appellant in response stated that some provisions for the QBCC were not valid. This claim led to intervention by the Attorney, who made the case ruled in favor of the respondents.

 Featherstone v Ashala Model Agency Pty Ltd (in liq) & Anor [2017] QCA 260

This section refers to the verdict arrived at following the appeal in the Supreme Court of Queensland by Darrell Morgan Featherstone against two respondents; Ashala Model Agency PTY Ltd and David James Hambleton which were both in liquidation[9]. The verdict which was arrived at by judges; Sofronoff P and Morrison and McMurdo JJA dismissed the appeal by the appellant who was then required to pay the respondents’ costs of the request. This case revealed the effects of winding up a business whereby almost all the cash that the first respondent had was used to purchase a residential apartment where the appellant used to reside. Also, it was the place where the company then had ceased to function, resulting in its deregistration and winding up in 2008 and 2012 respectively due to tax evasion. The appellant claimed that the first respondent still owed him the money used to purchase the apartment about the agreement for the lease of the premises. The liquidator sought to avoid the transaction since it was uncommercial. The appellant appeared to lie to the court of the alleged transactions. Proving that the deal was a preferential one, the liquidator had to show that the relevant controlling mind of the company had been motivated by such a goal to prefer[10].

New Laws That the Government Has Planned

Due to the increased cases of Phoenix in Australia, the government has come up with bills made laws to combat the problem of phoenix activity in the country. One of the significant plans by the government is the draft of the Treasury Laws Amendment Bill, proposed in 2017. The Treasury needs to make further consultation on the actual activities of the DPN regime. The law requires every company which fails to pay the PAYG within 21 days from the time of service of DPN to pay a penalty fee. During the 18 May 2019 federal elections in Australia, a Coalition Government returned. The calling of the vote and removal of the House of Representatives, all the Bills tabled lapsed. Most of these bills proposed significant tax and superannuation measured to be taken to avoid phoenix activities within the country. One of the plans by the government to help combat phoenixing is extending the Taxable Payments Reporting Systems (TPRS) to higher risks to ensure that all the payments made to contractors in all areas are reported annually to the ATO. The entities that provide road freight services, information technology, security, surveillance or investigation services will be required to report to the Taxable Payments Reporting System from 1 July 2019[11]. The other plan is to enforce the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 which had previously extended the TPRS operations of cleansing the courier services starting from 1 July 2018[12]. Besides, the enforcement of the Black Economy Taskforce Package, announced in 2018-2019 federal budget will see a significant improvement in combating the problem of Phoenix. It is along with the implementation of other laws such as The Treasury Laws Amendment (Work Test Exemption) Regulations 2018[13], the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 which aims at extending Single Touch Payroll reporting to all employers regardless of the repertoire of employees from 1 July 2019 among other treasury acts[14].

Conclusion

From the observation made on the progress of Phoenix in Australia, we can conclude that phoenix companies have been a significant problem within the Australian construction industry. The illegal phoenix activity in Australia impacts the employees, the business community the environment, and the government. Phoenix activity has deprived the Australian city of necessary funds which could have contributed to the development of infrastructures such as roads, hospitals, education, and other essential services[15]. Over one million Australian businesses ceased operating between 2012 and 2016, and this dramatically reveals that Australia significantly deprived of its economy by phoenix activity[16].

Case Summary and Analysis

In this appeal for an unknown verdict by the Supreme Court of Queensland, Michael Anthony Vickers who is the appellant appeals to the court against Queensland Building and Construction Commission and Brett Bassett as the Commissioner of the Queensland Building and Construction Commission and Mark E Wilson. These are the first, second, and third respondents respectively and the Attorney General for the State of Queensland who is the intervener. The general appeal which originated from the supreme court of Brisbane [2018] QSC 199 (Crow J) whose verdict was delivered in 16 April 2019 by judges Holmes CJ and Gotterson and Morrison JJA  dismissed and the appellant was to pay the respondents’ costs[17]. The appellant was the director of the two construction companies where one situated in South New Wales and the other in Queensland. The appellant received a notice of cancellation of his builder’s license, and the New South Wales Company placed into liquidation[18]. He claimed that the Midson New South Wales Company was not a construction company which appeared to the court as a phoenix company masked by the said Queensland Construction Company and hence the decline of the appeal to revalidate his license. The appellant sought relief against the cancellation of his license and included the proceedings in the Queensland Civil and Administrative Tribunal where he found a review of the verdict to give notices. However, the respondents[19] Filed a counter application requesting a dismissal of the proceedings under the judicial review Act 1991 (Qld) and the Uniform Civil Procedure Rules of 1999 (Qld). The appellant in response stated that some provisions for the QBCC were not valid. This claim led to intervention by the Attorney, who made the case ruled in favor of the respondents.

Citation

Vickers v Queensland Building and Construction Commission & Ors [2019] QCA 66

Court

Supreme Court of Queensland

Procedural History

On 3 January 2018, the Midson NSW was placed into liquidation, and as a result, the appellant notified of the cancellation of his builder’s license, according to s56AG and s56AF of the Queensland Building and Construction Commission Act 1991[20]. The ultimate result that followed the notice was the intervention of the Attorney General for the Queensland state. The proceedings reached the primary judge with three questions in issue whereby only two maintained on the appeal to the court which included; the query whether Midson Construction was a construction company or not and if the s56AC of the Queensland Building and Construction Company was valid. The primary judge concluded that Midson NSW was a construction company about the s56AC (7) of the Queensland Buiding and Construction Company Act and that the s56AC was valid.

Facts (Material Facts)

The appellant conducted a Phoenix business. His builder’s license was, and the Madson NSW Company liquidated.

Reasoning/ Decision (The Way the Court Answered Each of the Legal Issues

1. The court referred to Red Hill and set out the existing principles which apply when constructing the clauses which were affected by the definition clauses.
2. The court has adopted the principle in Kelly v The Queen that the proper course of statutory construction is to read the words of a definition into the substantive enactment and then constitute the substantive enactment[21]

Ratio

The individual can satisfy the Commissioner that at the time he ceased to be an influential person or director of the Madson NSW construction company, the company was solvent.

Obiter

In a case where an individual takes advantage of the laws of bankruptcy or becomes bankrupt (relevant bankruptcy event) and three years have not elapsed since the related bankruptcy event happened, the individual or company excluded from liquidation.

Order

1. The appeal is dismissed
2. The appellant is to pay the respondents’ costs

The extent to which the decision will alter the trial judges’ decision

I think that the extremity of the Phoenix business by the Madson NSW will determine the conclusion of the judges on whether the company requires liquidation or not. The judges are likely to order total closure of the two companies if they find out that the appellant has been lying to the court all the time. Also, the appellant will be required to pay a huge penalty to compensate for the respondents’ cost and the time wasted in courts during the appeals.

Bibliography

Anderson, Helen. “Illegal phoenix activity: Practical ways to improve the recovery of tax.” Sydney L. Rev. 40 (2018): 255.

Australian Bureau of Statistics (2017) Counts of Australian Businesses, cat no 8165.0. The count of business exits over those four years was 1,085,106

Corporations Amendment (Phoenixing and Other Measure) Act 2012.

Featherstone v Ashala Model Agency Pty Ltd (in liq) & Anor [2017] QCA 260

For statistics as to the different kinds of taxpayer entities that exist, see ATO, Statistics (11 January 2018) <https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2014-15/?page=3#Statistics>.

If the ASIC orders the winding up of a company, the company is assumed to have passed through section 491 special resolution and therefore, it would wound up voluntarily.

Queensland Building and Construction Commission

Sharp v Jackson [1899] AC 419 at 421-423 per Halsbury LC.

The Treasury Laws Amendment (2018 Measures No. 4) Act 2019 (enacted on 1 March 2019)

The Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act 2018 (passed on 29 November 2018) 

The Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 

The Treasury Laws Amendment (Work Test Exemption) Regulations 2018

The QBCC Act.

Vickers v Queensland Building and Construction Commission & Ors [2019] QCA 66

Vickers v Queensland Building and Construction Commission & Ors [2019] QCA 66

[1] For statistics as to the different kinds of taxpayer entities that exist, see ATO, Statistics (11 January 2018) <https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2014-15/?page=3#Statistics>.

[2] Anderson, Helen. “Illegal phoenix activity: Practical ways to improve the recovery of tax.” Sydney L. Rev. 40 (2018): 255.

[4] See Corporations Amendment (Phoenixing and Other Measure) Act 2012.

[5] If the ASIC orders the winding up of a company, the company is assumed to have passed through section 491 special resolution and therefore, it would  wound up voluntarily.

[6] Vickers v Queensland Building and Construction Commission & Ors [2019] QCA 66

[7] Queensland Building and Construction Commission

[8] The Queensland Building and Construction Commission (“the Commission”), the Commissioner, and a Licence Entitlement Officer.

[9] Featherstone v Ashala Model Agency Pty Ltd (in liq) & Anor [2017] QCA 260

[10] to See e.g., Sharp v Jackson [1899] AC 419 at 421-423 per Halsbury LC.

[11] SeeThe Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act 2018 (enacted on 29 November 2018)

[12] See The Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018

[13] See The Treasury Laws Amendment (Work Test Exemption) Regulations 2018

[14] See The Treasury Laws Amendment (2018 Measures No. 4) Act 2019 (enacted on 1 March 2019)

[15] See the economic impacts of potential illegal phoenix activity report (PDF 778KB)

[16] Australian Bureau of Statistics (2017) Counts of Australian Businesses, cat no 8165.0. The count of business exits over those four years was 1,085,106

[17] Vickers v Queensland Building and Construction Commission & Ors [2019] QCA 66

[18] Queensland Building and Construction Commission

[19] The Queensland Building and Construction Commission (“the Commission”), the Commissioner, and a Licence Entitlement Officer.

[20] The QBCC Act.

[21] The resolution of the issues on appeal centers primarily on s 56AC of the QBCC Act