The ATO is urging businesses to do their due diligence before entering into partnerships with other organisations, to protect themselves from falling prey to illegal phoenix activity.
Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. You can avoid phoenix companies by knowing who you’re going into business with.
To protect your business, you could:
- confirm the business is registered and its ABN is valid
- obtain a credit check
- ask for references
- get a company report from ASIC
- search the company and its directors online for any adverse media reports
- ask for payment up front or in instalments
- include a clause in your contract requiring the business to have all their taxes paid up-to-date; this creates a right in contract that you can pursue in the event of illegal phoenix activity.
The Phoenix Taskforce provides a whole-of-government approach to support businesses who want to do the right thing and deal firmly with those who choose to engage in illegal phoenix behaviour.
Inside Small Business