Criminal charges loom in phoenix scams probe on big construction projects

01/07/2018 // by admin

Eight of Australia’s biggest construction projects are being probed for the existence of phoenix scams, with regulators  preparing to file criminal charges.

The tax office, the Australian Securities and Investments Commission and the Fair Work Building and Construction inspectorate are co-operating on the problem of contractors sending their companies into liquidation to avoid debts to employees, the tax office and others.

Phoenix scams – when a company goes bankrupt and a second company (known as a phoenix company) is started up overnight with the same directors – are regarded as a serious problem facing industries with large numbers of short-term blue-collar workers, including construction, labour hire, meat processing and horticulture. Consulting firm PWC estimated in 2012 the problem costs the economy between $1.8 billion and $3.2 billion a year.

By liquidating front companies owners avoid paying taxes and money owed to employees, including leave and superannuation. They transfer the collapsed company’s assets to a new company, which later repeats the process. The owners reap big profits with little chance of being prosecuted, at least until now.

Phoenixing is one of the problems being investigated by the royal commission into union corruption, which has been told that companies associated with underworld identity George Alex appear to have been involved in phoenixing.

Big construction companies have agreed to provide financial information and documents about their contractors to the tax office, which is using it to identify sub-contractors breaking the law.

The regulators would not identify which companies are providing them with information, but they are likely to include Lend Lease and Leighton.

“Yes, we are aware that the ATO and ASIC are investigating the issue of phoenix companies,” a Lend Lease spokeswoman said. “We work with the regulators as required.”

A Leighton spokeswoman declined to comment.

ASIC’s senior executive for small business compliance and deterrence, Brett Bassett, said the construction industry “is the highest represented sector in illegal phoenixing activity”.

“There are still a percentage of people who, even if they have had a knock on the door from ASIC, will still do the wrong thing,” Mr Bassett said.

An ASIC spokesman would not disclose which projects are on the hit list. Last year ASIC identified several hundred directors who had a history of churning through companies. The agency hired a credit-assessment company to monitor them.

When it looked like any of the companies were in danger of going broke ASIC contacted the directors and said their behaviour had the hallmarks of illegal phoenixing – a warning intended to act as a deterrent.

Six or seven of 208 possible phoenixing cases examined by ASIC’s small business compliance and deterrence unit since July last year are being investigated further, according to Mr Bassett. Some are being looked at by ASIC’s enforcement team. Others have been referred to the tax office.

The tax office and the Australian Federal Police are preparing evidence for the Commonwealth Director of Public Prosecutions, which will make the final decision on charges.

“I would expect there to be some significant progress in relation to phoenixing matters in the near future,” said tax office assistant deputy commissioner Bruce Collins. “Charges are expected to come soon.”

The tax office has a team of 40 people dedicated to phoenixing. Most of them are concentrating on the construction industry. The main team at ASIC looking at the problem has 42 staff.

The director of the Fair Work Building and Construction inspectorate, Nigel Hadgkiss, said it referred any allegations of phoenixing to ASIC or the tax office.

Officials from his agency, ASIC and the tax office held a three-hour meeting with representatives of Australia’s largest construction companies in Sydney in December.

A key problem identified at the meeting was fraudulent statutory declarations submitted by mid-level contractors. These documents, which are required for final payment from the company in charge of the project, declare that the contractor has completed its work and paid its sub-contractors.

Some mid-level contractors submit these legal documents falsely claiming they have completed their contract and paid their sub-contractors. On the basis of the document they are paid by the head contractor. The company is then liquidated without paying employees and the tax office.

One of the problems fighting phoenix scams is that there is no specific law against phoenixing. Law-enforcement agencies need to prove that the people behind the scams intend to defraud their staff, the tax office, creditors or someone else, or that they lied in legal documents. Companies involved in phoenix scams often have incomplete financial records, which complicates regulators’ investigations and can be an offence in itself.

Some critics and people involved in winding up failed companies say regulators are not devoting enough resources to fighting the problem.

“I don’t think the fight is going well enough,” said Queensland Nationals senator John Williams, who is seeking a parliamentary inquiry into phoenixing, Ponzi schemes and liquidators. “You hear so many stories about a business closing and it seems overnight it reopens under another name.”

This story Administrator ready to work first appeared on Nanjing Night Net.

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