A phoenix company is a phrase coined from the saying “rising from the ashes”. What happens for a company to be called a phoenix is that a new company gets created which is usually called something very similar to the old company and the new company takes over the business of the old company for zero or inadequate consideration. Creditors from the old company are left unpaid and the old company gets liquidated or is left abandoned for the unpaid creditors or the ASIC to wind it up. This type of transaction is illegal as it is a deliberate attempt to avoid paying creditors of the old company. By leaving all the unpaid debts in the old company, this means suppliers and creditors will be left empty-handed and are usually left with no choice but to approach the court for a liquidator to be appointed.
Any director who engages in illegal phoenix activity may face serious consequences in the form of enforcement action from the ASIC and the liquidator (should one get appointed).
Whilst not all companies which are placed into liquidation are for the purpose of phoenixing, it is important to recognise the key characteristics of a phoenix company:
- The business of the old company remains the same to the public eye but legally it has been transferred to a new company, controlled by the same parties who were associated with the old company;
- The creditors of the old company are left unpaid; and
- Insufficient or zero consideration is paid for the transferred business.
If you would like more information about what a phoenix company is, speak to a professional insolvency specialist. Please contact Insolvency Services Australia on 1800 003 883. Our toll-free hotline is open 24 hours, every day 7 days a week.