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ASIC ramps up surveillance targeting false declarations



Featured | News

By Stephanie Zillman

The Australian Securities and Investments Commission has announced it is ramping up its surveillance program aimed at weeding out illegal phoenix operators.

ASIC will especially be looking at the use of false statutory declarations in Australia’s building and construction sector.

Commissioner Greg Tanzer said ASIC’s latest surveillance campaign follows feedback from small businesses, industry bodies and other government agencies about the use of false statutory declarations in the sector to falsely claim payments for work.

“There is concern that some company officers of larger companies have falsely declared that they have paid small businesses contracted to work on commercial and residential projects when this is not the case,” Mr Tanzer said.

“Falsely declaring that you’ve paid a contractor has serious flow-on effects in the building and construction industry. Many contractors are small business operators who have operating expenses and debts to pay. When they are not paid for work undertaken it puts their businesses, livelihoods and creditors at risk.”

Mr Tanzer said the surveillance was also another important step in ASIC’s work to combat illegal phoenix activity – the fraudulent act of transferring the assets of an indebted company into a new company to avoid paying creditors, tax or employee entitlements.

At a recent roundtable discussion hosted by commercial credit reporting bureau CreditorWatch, credit managers from a raft of Australian businesses voiced their frustration at the short-changing caused by illegal phoenix activity.

Speaking at the event, ASIC Regional Commissioner-Queensland Brett Basset said the regulatory body has its work cut out in successfully prosecuting illegal phoenix activity.

As such, ASIC relies on businesses and credit managers understanding precisely what to look for. Notably, a significant number of statutory reports that are lodged with ASIC by liquidators are increasingly alleging illegal phoenix activity.

CreditorWatch Managing Director Colin Porter said that clients and credit managers can identify when there appears to be phoenix activity, because they’re dealing with a company and then they’re applying for a new account under a different entity. “[And] they don’t understand why the liquidators aren’t identifying that there is illegal phoenixing, nor why ASIC aren’t getting more involved. But it can be a very difficult thing to prove.”

In the 2012/2013 financial year, ASIC disqualified 57 company directors from managing corporations, and received approximately 1,400 requests for assistance from external administrators each year.

Indeed, ASIC prosecutes around 500 company officers for more than 800 offences with fines and costs of over $1 million ordered.  In addition, approximately 40 per cent of requests for assistance are resolved by company officers providing the liquidator with the necessary information.
“While false statutory declarations and fraud matters are matters for other regulatory and enforcement agencies, company officers who knowingly make a false statement regarding payments to creditors may find themselves facing criminal or civil action by ASIC,” Mr Tanzer said.

Under the Corporations Act, ASIC can also take administrative action against company officers who engage in misconduct. In the last year, ASIC banned 60 directors who engaged in misconduct including phoenix activity.

‘This campaign builds on ASIC’s work to help small business owners protect themselves from unscrupulous operators. It also follows the release of our free smartphone app, ASIC Business Checks, which is a tool designed to help business owners undertake some practical and easy checks to verify information about businesses they’re dealing with or potential business partners’, Mr Tanzer said.

ASIC’s surveillance will focus on eight major commercial and residential developments under construction across Australia. Find out more about ASIC Business Checks here. CreditorWatch is also a useful tool for business owners looking to access a credit report on any business in Australia. The service helps business owners to assess the credit worthiness of prospective business clients, and what sort of risk they represent to your business.

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