Illegal Phoenix Activity in Australian Construction: What It Is and How Regulators Track It

What it is

Illegal phoenix activity is the practice of stripping assets from a company that owes creditors, liquidating or abandoning the empty shell and starting a new company that carries on the same business with the same people. The new entity rises from the ashes of the old one, hence the name. The losers are unpaid subcontractors, employees, the ATO and homeowners holding stalled contracts.

Phoenixing is not a single offence. It is a pattern of behaviour that can breach the Corporations Act 2001 (Cth), the Taxation Administration Act 1953 (Cth) and fair work and corporations criminal provisions. The Australian Government runs a multi-agency Phoenix Taskforce to coordinate response, and construction is consistently one of the most affected industries.

The legal definition

Australia does not have a single statutory definition of phoenix activity. The closest is the creditor-defeating disposition regime introduced by the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth), which inserted sections 588FDB, 588FE(6B) and 588GAB into the Corporations Act.

A creditor-defeating disposition is a disposition of company property for less than market value or the best price reasonably obtainable, where the effect is to prevent, hinder or significantly delay the property becoming available to creditors in a winding up. If the disposition occurred while the company was insolvent, or external administration began within 12 months of the disposition, the transfer is voidable. The liquidator has until the later of three years after the relation-back day or 12 months after appointment to apply.

The first case to test the regime was Re Intellicomms Pty Ltd (In Liquidation) in 2022, where the Victorian Supreme Court declared a sale of assets to a related entity at a discount was a creditor-defeating disposition and ordered the assets returned.

Why construction attracts phoenix activity

Residential construction has features that make phoenixing more tempting and more damaging than in other sectors.

Cash flow runs ahead of cost. Homeowners pay progress claims under a stage-based payment schedule, while suppliers and subcontractors are paid in arrears. A builder collects a frame stage payment, banks it, defers paying subcontractors and uses the float to start the next site. When the float dries up, the company runs out of money even though headline revenue is healthy.

Margins are thin. A fixed-price contract signed 12 months ago might no longer cover trade costs after a price rise. The builder cannot increase the price, so the only short-term answer is delay paying suppliers. Eventually the supplier stops working and the cash collapses.

The asset base is portable. Tools, utes, a website, a brand, a head office team and a customer pipeline all move easily into a new entity. The director can incorporate a new company on Friday and start operating on Monday with the same crew, vans repainted and a slightly different ABN.

The agencies and tools

The Phoenix Taskforce was established in 2014 and brings together the ATO, ASIC, the Department of Employment and Workplace Relations, Fair Work Ombudsman, Australian Federal Police, Treasury and the Australian Border Force. The Taskforce shares data on suspected serial offenders, runs joint operations and coordinates compliance action.

ATO levers

The ATO uses the director penalty notice regime, the promoter penalty rules and refusal to allow GST refunds to high-risk entities. It also has data-matching access to construction contractor reporting through the Taxable Payments Annual Report regime that captures contractor payments in the building and construction industry.

ASIC levers

ASIC banning orders prevent a person from managing a corporation for up to 25 years where the person has been an officer of two or more failed companies within seven years. ASIC also runs the Assetless Administration Fund to pay liquidators of small companies with no assets to investigate possible offences, which is how a lot of phoenix cases reach court.

Director identification

Since 1 November 2021 every company director must hold a Director Identification Number issued by Australian Business Registry Services. The DIN is a permanent 15-digit ID that follows the director across companies and prevents phoenix operators using fabricated identities to control multiple shells.

Indicators a builder is phoenixing

Liquidators and the ATO look for patterns. A common set of indicators includes the same trading name continuing under a new ABN, the same directors and key staff moving across, the same office and phone number, sale of key assets to a related entity at undervalue shortly before liquidation, unpaid superannuation across multiple companies and a history of unpaid trade creditors who keep working for the new entity because they are chasing the old debt.

None of these alone proves illegality. A pattern of several together is what triggers investigation.

Penalties

Penalties for officers involved in creditor-defeating dispositions include civil penalties of up to the greater of 5,000 penalty units, three times the benefit derived, or 10 per cent of annual turnover for corporations under section 1317G of the Corporations Act. Criminal penalties under section 588GAB apply for dishonesty. Disqualification orders, banning orders and personal liability for company debts flow from successful prosecutions.

Practical signals for homeowners and subbies

A homeowner offered a novation to a new entity mid-build by the same director should pause and get advice. A subcontractor invited to work for a new company by a former client who has not paid the last invoice should run a credit check on the new ACN, look for connected names on ASIC and ask for upfront payment terms. Looking at director histories and recent companies is now substantially easier with the Director ID linking records together.