What is Phoenixing?

Illegal phoenix activity is often identified as a fraud-driven wealth creation strategy. Illegal phoenix activity generally involves a high frequency of phoenix activity over a relatively short period of time. Effectively, the owners of the business use the corporate framework to gain an unfair advantage. Putting a company into liquidation to avoid paying creditors effectively becomes part of their business model.

ASIC explains: “The key difference between a legitimate phoenix business rescue and illegal phoenix activity is the director’s dishonest intentions. Where a director sets out to intentionally avoid paying debts and liabilities, by transferring assets to another company without paying the true market value, then the conduct is illegal.”

Commercial Necessity Phoenix is legal and recognises the fact that sometimes the need to restructure (phoenix) may arise out of events outside the business owner’s control. This type of phoenix is considered a business rescue.​

In legitimate business rescue a fair market price is established by independent valuations. A fair market price for assets, including intellectual property and goodwill of the business, is then paid. The company will also need to be able to account for where the sales proceeds went.

(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.

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.

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.

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.

Check out our detailed blog article here.