Illegal Phoenixing or Pre-Pack? Understanding the Line between Illegal Conduct and Legal Restructuring

In recent years, the term phoenixing has appeared more frequently in the news and within professional networks. Often used in connection with failed companies and creditor losses, it sparks confusion—and concern—among business owners under financial pressure.

At de Jonge Read, we believe it’s important to cut through the noise and provide clarity. Not all asset transfers are illegal. In fact, there are legitimate ways to restructure a distressed business. But there’s also a clear line—and crossing it comes with serious legal consequences.

Let’s unpack what illegal phoenixing is, how it differs from legal restructuring, and how business owners can move forward confidently and lawfully.

(Illegal) Phoenixing refers to the practice of deliberately winding up or abandoning a company to avoid paying its debts, then transferring its assets to a new company uncommercially that then continues the same or a very similar business. The old company is left with unpaid creditors, taxes, and employee entitlements, while the new company carries on trading.

The name comes from the mythical phoenix that rises from the ashes. But in the real world, illegal phoenixing leaves a trail of damage behind — for creditors, employees, the government, and the broader economy.

This is distinct from a legal restructure or pre-pack, where assets are sold at fair market value which is later scrutinised and verified by a registered insolvency practitioner and creditors are given transparency and a fair return.

A typical illegal phoenix scenario looks like this:

• Company A is struggling with debts.
• Before liquidating, the directors transfer Company A’s assets (plant, equipment, customer contracts, goodwill) into a newly registered Company B for under or no commercial value.
• Company A is then wound up i.e. liquidated, leaving creditors — including the ATO, suppliers, and employees — unpaid or little return.
• Company B continues to trade, often from the same premises, with the same staff and directors, but without the debt.

This is not restructuring and it’s illegal.

Not all phoenix activity is illegal.

One tool that is often confused with illegal phoenixing is a pre-pack, a legitimate process. In short, pre-pack is when assets are transferred at commercial value before the appointment of a liquidator.

To address illegal phoenixing, the government introduced the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020, which created tough new rules, giving regulators greater power to investigate and unwind dodgy transactions:

• Creditor-defeating dispositions: Asset transfers for less than market value to related parties can be reversed by liquidators or ASIC.
• Director penalties: Company directors and advisors can face civil and criminal penalties for facilitating phoenixing, including bans and imprisonment.

In short — while there are lawful ways to restructure a business, the law is clear that transactions designed to defeat creditors will not be tolerated.

Insolvency is when a company cannot pay its debts as and when they fall due. It’s the financial state that often leads to voluntary administration, liquidation, or — where the business is still viable — a formal restructure.

At de Jonge Read, we help business owners navigate distress within the boundaries of the law. We do not support or engage in illegal phoenixing. Instead, we specialise in commercial restructures that are transparent, compliant, and designed to maximise outcomes for all parties.

One such tool as mentioned above is a pre-pack, where:

• An independent valuation of business assets.
• A sale at fair market value, often to a new entity.
• Payment or payment terms are made
• Reviewed by a registered insolvency practitioner
• Full transparency to creditors: Creditors are informed, and the return to creditors is superior to what they would receive in a straight liquidation.

The result? A viable business is preserved, creditors receive a better return than in liquidation, and the process is fully compliant with insolvency law.

✅ At de Jonge Read, we do not engage in illegal phoenixing. We only support legal, structured outcomes like pre-packs that protect all parties.

Other formal solutions include:

2. Small Business Restructuring (SBR)

A formal process introduced in 2021, SBR allows eligible small businesses i.e. the directors to retain control while putting forward cents in the dollar offer to creditors. This option is designed to be simple, fast, and accessible for small business owners with less than $1million in total unsecured debts. (read more about SBR here)

3. Voluntary Administration and DOCA

For more complex and larger businesses, a voluntary administration can lead to a Deed of Company Arrangement (DOCA)—a negotiated agreement with creditors that allows the business to survive and settle debts over time. (read more about it here)

Each of these options is transparent, regulated, and ethical solutions that protect directors from personal liability while ensuring creditors are treated fairly.

Understanding the difference between illegal phoenixing and legitimate restructuring is crucial. One is about avoiding responsibility, the other is about protecting what’s valuable while doing the right thing.

If you’re facing financial pressure or already in distress, now is the time to act.

• Don’t wait until options are limited.
• Don’t rely on untrustworthy advisors offering “too good to be true” solutions that could land you in legal trouble.
• Do seek expert guidance from a restructuring specialist who operates within the law (de Jonge Read principals are certified turnaround practitioners).