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Plumbers have had enough
WHAT’S NEXT?
This is a general guide only. You may wish to seek professional advice from your accountant, financial advisor or a lawyer to tailor make a guide that suits your business and clientele.
A thorough due diligence and risk management system is a fundamental tool to assist in the running of a successful business. Such a system assists to safeguard profitability and minimise risk to your business. Always do your homework before signing the dotted line with a potential client.
For more information please contact Thina Mariappan on 8292 4000.
MPA SA will be providing Members with the key contract clauses to be wary of; these clauses will be published in the members section of the website.
Issue 4 - Information on Phoenix activity
What is phoenix activity?
Phoenix activity refers to the registration of a company to take over from a business of a failed or insolvent predecessor company.
Does phoenix activity indicate something illegal is going on?
Phoenix activity is not necessarily breaking the law.
The law will generally excuse directors and shareholders for companies’ failures and for their debts.
A director may run a company in a responsible legal manner but because of business reasons or economic reasons be unable to pay the debts of the company. So at the point where the director becomes aware of the company not being able to meet its financial obligations, they’re really under an obligation to hand the company over to liquidators to use the assets of the company to pay the creditors. So the directors will then be able to potentially start another company and this company could take over the same or other businesses. And, in fact as a result of the administration or the creditors accepting a deed
of company arrangement that may well be the case where the current directors do start up another company to continue on the business.
When might phoenix activity indicate illegal activity?
The key for looking at illegal activity through a phoenix operation is that the directors have deliberately attempted to avoid paying their creditors or any of their taxes through illegal conduct. The directors may run the company legally or responsibly but the company may fail or be unable to pay its debts. If at this stage the directors attempt to transfer the assets away to a similar company or transfer the assets out before appointing a liquidator, then that may be an indication of illegal activity. That’s because the liquidator will be attempting to use the assets to pay the creditors and so be the directors transferring the assets before appointing the liquidator then is really an attempt to avoid paying the creditors. These could include employees, tax obligations and other creditors generally.
What can I do if I have concerns about phoenix activity?
- As a supplier of goods and services?
If you are looking to do business with a company then you should ask them questions about their operations and seek to verify the answers on the ASIC Business Checks. For example, consider whether the business is registered or consider whether you need to look at its credit history. Using ASIC Connect you can check if the company is in liquidation or is under administration. If you suspect that a business is breaking the law then lodge a report with ASIC via their website.
(This information was sourced from the ASIC website)
Note; MPA SA has and will always represent the best interests of its members, the article that follows this article written by John Chapman may have stemmed from a meeting between the Small Business Commissioners Office, MPA SA & two members who had been “screwed” to the wall by two builders that went broke. It is time we all stand up and fight for a fair go in these situations.
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