ASIC and ATO cracking down on phoenix companies in construction industry

Contractors who engage in phoenix activity in the construction industry are expected to face charges soon as a result of a joint investigation by Australia’s corporate regulator and the Australian Tax Office.

The Australian Securities and Investments Commission is working with the ATO and the Fair Work Building and Construction inspectorate to investigate eight of the nation’s largest big construction projects to take action against contractors believed to be operating phoenix scams.

As part of the investigation, a number of large construction firms have agreed to provide the ATO with financial information and documents about their contractors in order to help identify sub-contractors engaging in phoenix activity.

Fairfax reports the ATO is compiling evidence for the Commonwealth Director of Public Prosecutions, which will make the final call on whether company directors will be charged.

Tax Office assistant deputy commissioner Bruce Collins said this morning the ATO has “a number of significant ongoing investigations underway at the moment” and “expect[s] further charges to be laid in relation to illegal phoenix activities in the near future”.

Collins says phoenix activity describes a situation where a company is deliberately liquidated to “avoid financial obligations such as PAYG withholding, income tax, GST and super liabilities, without risking the operator’s assets, and with the intention of resuming business through a new entity”.

He says this kind of fraudulent phoenix activity “is widespread among labour intensive industries, especially in the property and construction industry”.

“We are currently liaising with head contractors from the property and construction industry to help deal with the risks associated with phoenix operators,” says Collins.

“This includes engaging with them on how phoenix activities could be occurring within their sub-contractor supply chain.”

A spokesperson for ASIC also said this morning the corporate watchdog is currently undertaking a “surveillance campaign focusing on directors who have a history of being involved in alleged illegal phoenix activity to try to prevent any illegal future behaviour”.

The spokesperson says ASIC has examined 208 possible cases of phoenix companies since July 2013, and of those cases, “six or seven are being investigated further”.

The spokesperson says ASIC is particularly concerned about “the use of false statutory declaration by subcontractors as a means of being paid (by the head contractor) for services undertaken during the construction of major building projects”.

“A disproportionately high number of corporate failures where illegal phoenix activity is alleged, occur in the industries of construction, labour hire, transport security and cleaning,” says the spokesperson.

“To combat this, ASIC has implemented a new and innovative strategy specifically focused on the building and construction industry.”

Both ASIC and the ATO have not identified which companies are providing information about their contractors, but Fairfax suggest the eight companies are likely to include construction giants Lend Lease and Leighton.

A spokesperson for Lend Lease told Fairfax the company is “aware that the ATO and ASIC are investigating the issue of phoenix companies” and Lend Lease will “work with the regulators as required”.

This article first appeared on SmartCompany.