News

It's becoming increasingly clear that many SME businesses are struggling to deal with the consequences of the non-payment of tax liabilities that have accrued over the past number of years, and the reality of staying in business is starting to dawn.

Many business owners just want to be able to continue with their businesses, freed of the burdens of the past and are now exploring the opportunities, ways and means of doing so.  

The options are much clearer for a business that has experienced a genuine business failure event that can be rectified, and the business has been responsibly managed in the past. For these, an SBR, voluntary administration or even a business transition facilitated by a targeted liquidation appointment are all clear options.

But for businesses where the root cause of failure is unable to be identified and rectified, and the directors have no real answers, there is a less compelling argument for a business transition. It’s often these businesses when combined with a director’s desire to stay in business at all costs, that consideration of phoenix arrangements occur.

The Corporations Act has specific provisions described as creditor-defeating dispositions that are used to combat illegal phoenix activity, but exactly what these provisions mean or how to interpret them has not yet been clearly described. 

We say that an illegal phoenix can be identified where there is an intention of the company's director to use the company’s failure as a device to avoid paying creditors which may otherwise have received a share of the company's assets if properly dealt with.

A proper vision for a restructured future relies on a clear understanding of the past, and we encourage directors of struggling businesses to take good accounting and legal advice to ensure this analysis forms part of the future solution.