Australia : Phoenixing by companies that deliberately go broke has a direct cost of up to $5bn a year on business, employees and government, including a whopping $3bn owed to other businesses, a PwC report says.
Phoenixing is the deliberate and systematic liquidation of a company to avoid liabilities such as tax and employee entitlements then restarting the business to continue making a profit through separate trading entities.
The estimates are contained in a PwC report, to be released on Monday, along with an announcement from the minister for revenue and services, Kelly O’Dwyer, that the tax office has audited 340 businesses for involvement in phoenix activity in the last financial year, resulting in it issuing tax bills of $270m.
Employees were left with unpaid entitlements estimated to cost up to $300m, although much of the unpaid wage bill is left to taxpayers who have forked out $1.6bn over 10 years to employees of failed companies.
PwC estimated that the overall economy-wide impact of phoenixing was between $1.8bn and $3.5bn of lost gross domestic product, or 0.11% to 0.21% of GDP in 2015-16.
The report said that illegal phoenix behaviour “can act like a ‘tax’ on victims because money is spent” but goods and services are not received and workers who miss out on entitlements have less money for consumption.
The estimated total impact to household consumption as a result of potential illegal phoenix activity is between $1.20bn and $2.36bn, it said.
“Successfully combating potential illegal phoenix activity in a cost-effective manner could provide a significant boost to the Australian economy,” the report concluded.
The PwC report said more than 1 million businesses ceased operating during the financial years 2012-13 to 2015-16, and 36,532 business failures resulted in insolvency with an external administrator appointed.
“In most cases, these may have been legitimate and honest commercial failures; in other cases these failures may have been deliberate,” the report said.
