Illegal phoenix activity: what it is, the penalties, and the advice to walk away from

What exactly is illegal phoenix activity?

In the ATO’s framing, it’s an intentional move: the company’s assets are transferred to a new entity, the same or a similar business carries on, and the old company’s debts are abandoned — leaving staff, creditors (often other small businesses) and the wider community to pay for it.

The name comes from the mythical bird that rises from its own ashes. The old company collapses owing tax, wages, super and supplier bills; a new company — often with the same people, premises, staff and customers — carries on as if nothing happened, but without the debts.

Why is it relevant to anyone with ATO debt?

Because it’s rarely pitched as “phoenixing”. It’s pitched as protecting your assets, saving the business, a fresh start or a restructure. A stressed director, worried about the ATO and their home, can be told by an adviser that the sensible move is to “shift the good parts of the business into a clean company” before the old one is wound up. It sounds practical. It can be a crime.

The ATO’s warning signs for insolvency advice include advisers who suggest transferring assets to a third party without payment, advise restructuring to avoid paying debts, know a valuer who can under-value assets, or encourage any kind of phoenix activity. Acting on that kind of advice, the ATO says, can lead to fines, criminal charges and even prison.

What are the penalties?

ASIC says illegal phoenix activity can result in large fines and up to 15 years’ imprisonment for company directors and secretaries. Crucially, the same penalties can apply to anyone who “aided, abetted, counselled or procured” it — so advisers aren’t immune either. Beyond criminal penalties:

• liquidators can seek to recover assets transferred for less than their value;
• directors can be disqualified from managing companies;
• the ATO can pursue directors through the director penalty regime and other measures.

How is a legitimate restructure different?

Restructuring a business group isn’t illegal. ASIC explains that in a lawful restructure, assets are independently valued to determine their true market value, and the new company pays that value. The money goes to the old company, which can use it to pay creditors.

Legitimate	Illegal phoenix pattern
Independent valuation of assets	“Our valuer” or no valuation
New entity pays full market value	Assets transferred for nothing or a token sum
Proceeds go to the old company’s creditors	Creditors left unpaid
Done openly, with advice in writing	Rushed, verbal, “don’t tell anyone”
Employees’ entitlements paid	Employees left unpaid

What are the warning signs in a pitch?

• “Let’s move the equipment and customers to a new company before the ATO winds up the old one.”
• “We’ll get the assets valued low so the new company doesn’t pay much.”
• “You don’t need to give the liquidator those records.”
• “We’ll deal with the liquidator for you — we know someone friendly.”
• “This will protect your house.”

If you hear anything like this, stop. Get independent advice from your accountant, a lawyer or the free Small Business Debt Helpline (1800 413 828). Our warning-signs checklist covers the full list.

How do you report it?

The ATO runs the Phoenix Taskforce with other agencies. You can report suspected illegal phoenix activity, or advice to engage in it:

• phone 1800 060 062;
• email phoenixreferrals@ato.gov.au;
• tip-off form on the ATO website or app.

What’s the lawful alternative to “protecting assets”?

The lawful way to protect yourself is the boring one: lodge on time, engage with the ATO, and pay or arrange the debt. For a viable business, paying the ATO in full — often with funding — removes director penalty exposure entirely, including lockdown amounts, and keeps the business you built. Property-secured loans run from $20,000 to $5,000,000; unsecured options typically $5,000 to $500,000.

If the business genuinely can’t continue, a properly run process by a registered liquidator is the lawful way to close it — and starting again afterwards is fine, provided assets are bought at true value.

What if you’re the creditor of a phoenix company?

Sometimes business owners are on the other side: a customer’s company collapses owing them money, and a near-identical business appears under a new name trading from the same premises. If that’s happened to you, you can report it to the ATO or ASIC, make sure your claim is lodged with the liquidator, and get advice about whether personal guarantees or other recovery avenues exist. Unpaid debts from a phoenixed customer are also one of the common reasons good businesses fall behind with the ATO themselves — a circumstance worth mentioning in any GIC remission request.

If you’ve already been given this advice

If an adviser has already suggested moving assets, don’t act on it. If you have already moved anything, get independent legal advice straight away about your position and how to put things right. Acting early, openly and on proper advice is always better than hoping a transfer goes unnoticed — liquidators and regulators are experienced at finding them.

Want a lawful way to keep your business?

If someone has suggested moving assets to escape the ATO, please talk to someone independent first — and if your business is viable, ask us whether funding could pay the debt instead. There’s no credit check to enquire, your details stay with one team rather than being shared with other lenders, and a real person will give you a straight answer. Accurate information helps.