Illegal phoenixing could be hurting your business
Legitimate South Australian businesses doing the right thing are going out of business because they can’t compete with cost-cutting labour hire companies. Help us stop these fraudsters in their tracks by taking a few minutes to learn about illegal phoenixing and how to avoid falling victim to this unscrupulous behaviour.
What is phoenixing?
Phoenixing’ is used to describe a new business rising out of the ashes of a failed business.
Illegal phoenix activity happens when company directors deliberately shift their business to a new entity, depriving the first company of assets to pay its debts, including taxes, ReturnToWorkSA premiums, superannuation and other employee entitlements.
Phoenixing enables fraudsters to illegally discount their labour costs
Fraudulent labour hire companies can factor non-payment of statutory liabilities into their pricing decisions (eg. PAYG withholding, superannuation contributions and work injury insurance premiums). This then allows them to offer discounted rates to host employers, pricing honest businesses out of the market.
Unscrupulous host employers are known to take advantage of these discounted rates by setting a ‘maximum wage’ they are willing to pay and encouraging labour suppliers to ‘bid down’ to the lowest price.
Premiums paid by honest employers cross-subsidise dishonest employers
Declaring correct remuneration and paying proper premiums ensures that honest employers are not subsidising those who are dishonest and that workers are not disadvantaged.
Avoid falling victim to phoenix activity
You can protect yourself from illegal phoenix activity by looking out for the following signs:
- a labour hire company is able to offer significantly discounted rates compared to other contractors
- a new labour hire company quickly or automatically replaces one that is wound up but retains the same employees
- common management and invoice styling between successive (phoenixed) labour supply companies
- workers are required to pay a bond to secure their position
- workers are underpaid or paid irregularly
- casual labour hire positions in your industry being advertised online with low hourly rates
- business owners and company directors enjoy lifestyles that appear to exceed their income.
Due diligence measures you might use if considering using a labour hire company include:
- checking their insurance status via our employer lookup tool
- checking they are registered with a valid ABN
- checking the company is currently registered with ASIC
- looking for unrealistic labour quotes that don't reflect proper wages, remembering that a labour hire company is required to pay on costs just like any other employer
- asking for references
- finding out if the directors or managers have been operating multiple successive labour hire companies
- completing a credit check
- looking for adverse media reports online.
Information you discover may prompt you to ask more questions.
If you suspect a company of illegal phoenix activity, you can make a tip-off to us by calling 13 18 55, emailing firstname.lastname@example.org or by completing our online fraud referral form. You can remain anonymous.
Your tip-off will complement our existing intelligence gathering and surveillance work, which has resulted in 90+ investigations in the last 12 months, as well as compliance audits on a further 500+ host employers.
We also employ a risk based approach to new employer registrations to ensure that companies suspected of phoenix activity are compliant before a certificate of registration (currency) is issued.
Investigating and prosecuting fraud is core to our business and if you are doing the wrong thing, you will be caught.