ATO & ASIC Raid Pre-Insolvency Firms

September 26, 2016

ATO & ASIC Raid Pre-Insolvency Firms | AIA

The war on unregulated and unlicensed Pre-Insolvency advisers is gathering pace with 120 ATO, ASIC and Federal Police raiding businesses and homes across Melbourne and on the Gold Coast.

According to the linked article, the authorities are concerned that unregulated Pre-Insolvency firms are advising clients on how to avoid paying tax.

ATO and ASIC raid “pre-insolvency” firms allegedly encouraging phoenix activity

According to a recent press release by Smart Company, a raid of 13 properties linked to “pre-insolvency” firms allegedly found them to have been in some way encouraging phoenix activity.

The raid was linked to 2 specific Pre-Insolvency firms that have not as yet been named. The specific issues being targeted involve allegations of encouraging and facilitating tax avoidance, GST evasion, and “phoenix” activity.

Phoenix activity involves the transfer or sale of assets (at undervalue or for no consideration whatsoever) from one company to another.

Usually, the company selling or transferring its assets is hopelessly insolvent and has debts that far exceed the value of its assets.

The Company receiving the assets is usually, but not always associated with or under the control of the old directors. The purpose of the transfer is to remove the assets and relieve the failing company from having to pay its creditors.

The ATO and ASIC believe “pre-insolvency” advice can relate to “how to phoenix a company”. Such transactions are illegal and may result in directors being jailed.

Warning for your business

The peak Insolvency body, ARITA says small and medium businesses should seek advice from qualified practitioners if their businesses encounter financial trouble.

Regulation and qualification is all important as the ASIC representative says many pre-insolvency advisers don’t have much experience, and they may give advice that goes against the law.

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