New laws to target dodgy company directors and 'phoenixing'

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Tough new laws will be introduced in a bid to crack down on dodgy company directors and their advisers.

new-laws-to-target-dodgy-company-directors-and--and-039;phoenixing-and-039; photo 1 Photo: The Government will consult on a range of other possible measures to tackle phoenixing. (ABC News: Margaret Burin, file photo)

Tough new laws will be introduced in a bid to crack down on dodgy company directors and their advisers.

Directors of Australian companies will be given a unique identification number to help stop the illegal activity of "phoenixing" — where companies are stripped of assets and liquidated, then restarted under a different name leaving creditors out of pocket.

Phoenixing is estimated to cost the Australian economy more than $3 billion a year.

The new Directors Identification Numbers (DINs) will allow authorities to track the activities of individual directors through various government databases and map their relationships with other directors and companies.

It is believed the Government is consulting on the best model of DINs to introduce.

Over the past 12 months, the ABC has reported on a number of "pre-insolvency advisers" who helped company directors carry out phoenixing.

The pre-insolvency advisers, or "facilitators", range from seemingly respectable accountants to people with organised crime links, and they too will be targeted by the new laws, which have been announced by the Minister for Financial Services and Revenue, Kelly O'Dwyer.

The ABC revealed last year facilitators were manipulating the corporate system by installing "dummy" directors in companies to shield the real directors from liquidators, creditors and the Australian Taxation Office (ATO), and were even able to backdate those appointments in the Australian Securities and Investments Commission's (ASIC) system to make it appear the dummy director had been in place for much longer.

Possible other measures to tackle phoenixing

As well as the DINs, the Government will consult on a range of other possible measures to tackle phoenixing, including making it no longer possible to backdate appointments, and stopping directors from being able to resign while leaving the company without a director.

Those suspected of phoenixing could also be forced to provide a security deposit, which the ATO could use to recover future unpaid tax debts.

Implementing a first-cab-off-the-rank system for liquidators was also flagged as a possible measure.

This would stop the appointment of "friendly" liquidators who turn a blind eye to phoenixing — a practice the ABC has seen evidence of in a number of cases.

There will also potentially be new specific phoenixing offences introduced, and an extension of existing penalties to capture the facilitators who advise phoenix operators.

The ABC spoke to numerous victims of phoenix operators, particularly creditors, over the past 12 months who expressed frustration with the lack of action taken by ASIC against dodgy directors and their advisers.

However, legitimate insolvency practitioners said the regulatory body was woefully under-resourced.

The ATO and other government agencies do have a combined anti-phoenixing task force, which has acted recently against some of the more prominent facilitators.

'Pre-insolvency adviser' accused of installing dummy directors

new-laws-to-target-dodgy-company-directors-and--and-039;phoenixing-and-039; photo 2 Photo: The ATO took action to force four of Philip Whiteman's companies into liquidation. (ABC News)

The ABC reported last year on Melbourne-based Philip Whiteman, a former bankrupt who was accused of helping scores of clients avoid millions of dollars in tax and payments to other creditors.

A number of people told the ABC they had been installed as "dummy" directors of companies by Whiteman without their knowledge.

The ATO took action in the Federal Court earlier this year to force four of Whiteman's companies into liquidation, and appointed accounting firm Pitcher Partners to forensically examine Whiteman's activities.

In a report tendered to the court, Pitcher Partners said Whiteman and his associates were operating a sprawling phoenixing operation, and might have committed too many crimes to individually list.

Labor's Andrew Leigh welcomed the new laws, but said the Opposition had been calling for the implementation of DINs for months.

"The Tax Commissioner confirmed the need for action back in May, when he told one member of a Senate committee that, 'I could appoint you as a company director without you even knowing and me then controlling the company'," Mr Leigh said.

"I don't know why it's taken the Turnbull Government this long to heed our call. I can only hope that they adopt the rest of Labor's plans to crack down on dodgy directors."

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