What is illegal phoenix activity, and where is the line?
Short answer
Illegal phoenix activity is when a new company takes over an old company's business for little or nothing, and the old company is liquidated or abandoned so its debts, go unpaid. The line is value: assets bought from a liquidator at independent valuation, with the money going to creditors, is a legitimate restart. Taking them for nothing is a crime, and the first thing checked in liquidation.
What it looks like
The pattern is familiar to every liquidator. A company builds up ATO debt, often GST, PAYG withholding and super. A new company is registered, sometimes with a similar name, a spouse or relative as director, and the same premises, phone number, staff and customers. Contracts, vehicles and equipment move across. The old company is left with the debts and is liquidated, or simply abandoned until ASIC strikes it off. Sometimes it is done several times in a row.
ASIC and the ATO treat the following as warning signs: a company name changed to its ACN shortly before a similar company is registered, assets transferred between related entities below market value, a successor business using the same website, bank facilities or advertising, and the same people in control of both.
Where the line is
| Legitimate restart | Illegal phoenix |
|---|---|
| Assets independently valued and sold at market value, usually by the liquidator | Assets transferred for nothing, or at a price no one would accept at arm's length |
| Sale proceeds go to the old company for creditors | Proceeds, if any, go to the director or a related party |
| Old company put through a proper liquidation with full disclosure to the liquidator | Old company abandoned, records missing, directors resign or a straw director is installed |
| Employees re-employed with entitlements paid out or formally transferred | Employees moved with leave and super left unpaid |
| Decision taken to save a viable business and maximise creditor recovery | Decision taken to avoid paying the ATO and other creditors |
Directors are allowed to start again. Can I be a director again after liquidation confirms that a single failure does not disqualify you. What you cannot do is move the value out of the company without paying for it. If the business is worth keeping, small business restructuring exists precisely so the same company can keep trading while creditors get a fair share, and it does not carry any of the risks below.
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What happens if you cross it
- The transaction is unwound. Since 2020 a transfer that defeats creditors is a creditor-defeating disposition. The liquidator, or ASIC on its own initiative, can order the assets or their value returned. The new company and anyone who helped can be made to pay.
- Criminal charges. ASIC states that directors and officers face up to 15 years in prison for the most serious phoenix offences, and advisers who procure or assist the conduct face the same. Civil penalties and compensation orders run alongside.
- Tax debt follows you. The ATO issues director penalty notices for the old company's PAYG withholding, GST and super, and phoenix conduct makes it far more likely to pursue them to bankruptcy. The ATO can also hold back refunds of the new company and demand security from it.
- You cannot walk away as director. A resignation cannot be backdated by more than 28 days, and a director cannot resign if it would leave the company with no director at all. Resigning does not remove liability for debts that fell due while you were there.
- Disqualification. ASIC or a court can ban you from managing companies, for up to 5 years in most cases and longer for serious conduct.
The ATO, ASIC and other agencies run a joint Phoenix Taskforce that matches data across company registrations, payroll, super and tax accounts, so the pattern is detected mechanically, not by chance. If you are weighing a restart, can I close a company that owes the ATO sets out the routes that hold up.
What to do next
- If you want to keep trading, ask a restructuring practitioner whether the existing company can be restructured rather than replaced.
- If a new entity is the right answer, buy the assets through a registered liquidator at an independent valuation and keep the valuation and the payment records.
- Do not resign, transfer anything, or change the company name until you have taken advice from a registered liquidator or insolvency lawyer.
Related questions
Is it phoenixing if my spouse starts a similar business?
It depends on what moves across. A genuinely new business that buys nothing from the old company and takes no assets, contracts or unpaid-for stock is not phoenix activity, even in the same trade. If it takes over the old company's customers, equipment, staff and premises for nothing while the old company is left with the ATO debt, the family relationship makes the case worse, not better.
Can I buy my old company's equipment back from the liquidator?
Yes. Directors and related parties can buy assets from the liquidator, and it happens often because they are the natural buyer. The sale must be at market value supported by an independent valuation, disclosed to creditors, and paid in real money to the liquidation. That is what separates a lawful purchase from a phoenix transfer.
Want to restart without crossing the line?
A specialist can explain the lawful routes and their costs. Free and confidential.
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