Illegal phoenixing is one of the most damaging and misunderstood practices in Australian business. It happens when a company is shut down to avoid paying debts, and a new one is set up using the same assets, branding, and operations, leaving creditors, employees, and the ATO with nothing.
While some may view this as a way to start fresh, the reality is stark: it is illegal, and it is legislated against.
Daniel Frisken, Partner at O’Brien Palmer, highlights that directors are often unaware of the serious legal and financial risks they take when engaging in phoenix activity. Sometimes it’s due to poor advice, sometimes it’s a deliberate attempt to avoid obligations. Either way, ignorance is not a defence.
What’s the Difference Between Legal and Illegal Phoenixing?
Directors are allowed to start again after a business fails. But to do so legally, any asset transfer must be made at market value, with full transparency, and with proper documentation. Any deal that undercuts creditors, skips legal steps, or attempts to conceal value is not only unethical but unlawful.
Warning Signs of Illegal Phoenix Activity:
- A business suddenly changes its name to an ACN
- A new company is formed immediately after liquidation
- Same staff, same premises, same branding
- Unpaid creditors and employees left behind
The Risks for Advisors
Accountants, lawyers, and other advisors who are involved in facilitating or turning a blind eye to phoenix transactions can also be held personally liable. New legislation has made it clear: professionals are expected to uphold the law and advise clients appropriately.
If you’re an advisor, and your client is contemplating a restructure or business transfer, it is critical you involve a licensed insolvency practitioner and get a proper valuation and legal review.
For Business Owners in Distress
You do have options. At O’Brien Palmer, we work with business owners to find legitimate restructuring paths that support long-term success and fairness to creditors. Whether it’s through a small business restructure, voluntary administration, or formal insolvency, we help our clients navigate legally, ethically, and with confidence.
And if you’ve been the victim of an illegal phoenix transaction? We can help you recover what you’ve lost.
📞 Call us at (61) 2 9232 3322 for a confidential chat.
📩 Email us at: obp1@obp.com.au