Dodgy liquidators on notice
A Federal Court ruling has created a precedent that hands the Australian Taxation Office (ATO) a powerful weapon to curb phoenix behaviour that’s costing the nation’s economy more than $5.13 billion annually.
For the first time the ATO has successfully launched a court action using the Corporations Act that’s resulted in a liquidator who facilitated phoenixing being banned from practising for 10 years. He also had to pay costs of the ATO’s action.
David Iannuzzi, sole director of Sydney firm Veritas Advisory Pty Limited, was found to have shown “systematic negligence” in dealing with at least 23 companies over “an extended period of time”.
Assistant Commissioner of Taxation Aislinn Walwyn says the ruling is a boost to the ATO in its crackdown on phoenix activity by enabling removal from the business sector of people who are part of such behaviour.
Offender’s lack of veracity
Mr Iannuzzi’s behaviour belied the name of his firm, for he was anything but truthful in his dealings with the creditors of companies he liquidated for their phoenixing owners. Phoenix activity involves the deliberate winding up of a company – in effect its abandonment – to avoid paying creditors by transferring the assets of the company to a newly created entity that continues trading, often under a similar name.
Indeed, the court declared Mr Iannuzzi’s conduct was far short of what was expected of him in his failure to observe obligations of candour in disclosing relevant circumstances to creditors.
According to an ATO statement, this reflected so poorly on him, that he demonstrated clearly he was not a fit and proper person to remain registered as a liquidator.
The effectiveness of Australia’s taxation and superannuation systems relies to a considerable extent on the integrity of industry professionals, including insolvency practitioners.
Phoenixing’s ripple effect
When liquidators facilitate phoenix behaviour by business owners, the ripple effect of this criminal behaviour is manifested across the entire community of taxpayers.
It rips off creditors and employees, makes in very difficult for other honest taxpayers to compete successfully in the same industry, and reduces the revenue available to governments to fund essential services.
Business owners who don’t meet their tax obligations, not only put themselves and their companies on a slippery slope to financial disaster, but more often than not also end up financially crippling many people associated with the business.
A couple of years of not paying tax, of not lodging returns or reporting regularly as required to the ATO, can all too suddenly result in a frightening debt that has tempted many a desperate business owner to indulge in phoenix behaviour.
Small and often inexperienced business owners, start-up entrepreneurs, people in the thriving so-called gig economy newly relishing the freedom and flexibility of lifestyle that working from home on a lap-top can bring them, are most at risk of failing to meet their tax obligations and of suffering what can sadly be life changing consequences.
Owners of such business have only to lose a major client, to suffer cash flow setbacks as the result of a variety of unforeseen circumstances (a series of customers’ complaints for example) and things can quickly slide out of control.
Controlling tax obligations
- Check out who may be able to provide you with tools to track expenses and estimate tax liabilities, and most certainly should be able to advise you about this.
- There’s a difference between arranging to delay paying tax as a business strategy, procrastination, or not being able to pay tax. Know the difference. A priority aim should be to meet all tax obligations annually.
- Make the most of readily available technology to help manage your business. There are free apps that than can do this. The ATO has one.
- The so-called three-month rule is being adopted by people newly flying solo in the gig economy. They keep three months of living expenses in a special account as insurance against an unforeseen downturn in business.
- If you have an unmanageable tax bill and need credit cards and loans to keep your business afloat, start exploring your options immediately by way of expert professional help - before there are no options.