The Fair Work Ombudsman (FWO) has released a research report into phoenix activity in Australia, which estimates the activity could cost the Australian economy upwards of $3.19 billion.

 

The report, prepared by PricewaterhouseCoopers, estimated the cost of the illegal activity could be anywhere between $1.78 and $3.19 billion.

 

The report describes phoenixing as “he deliberate and systematic liquidation of a corporate trading entity which occurs with the fraudulent or illegal intention to:

  • avoid tax and other liabilities, such as employee entitlements; and
  • continue the operation and profit taking of the business through another trading entity.”

 

The report estimates that the annual cost of phoenixing in Australia is:

  • Between $191 million and $655 million for employees, in the form of unpaid wages and other entitlements;
  • Between $992 million and $1.93 billion for businesses, as a result of phoenix companies not paying debts, and goods and services paid for but not provided; and
  • Between $601 million and $610 million for government revenue, mainly as a result of unpaid tax – but also due to payments made to employees under the General Employee Entitlements and Redundancy Scheme (GEERS).

 

The report also acknowledges that there are a range of further impacts of phoenixing that were not able to be quantified, such as the impact on businesses’ revenue of being undercut by phoenixing companies, which gain an unfair competitive advantage by avoiding payment of debts.

 

Fair Work Ombudsman Nicholas Wilson says the research was commissioned because his Agency had indentified an increasing trend in companies engaging in phoenixing-like behaviours to avoid paying employee entitlements and court-issued penalties.

 

The Fair Work Ombudsman and PricewaterhouseCoopers consulted a number of key stakeholders during the course of the research, including Government Agencies, and employer and employee groups.

 

The research report makes a series of recommendations about measures for addressing phoenixing, including cross-Agency approaches to targeting phoenix behaviour and educating the community about indicators of phoenix activity.

 

The report can be found here