On 7 November Registered Liquidator David Iannuzzi was banned from practising as a registered liquidator for 10 years.
The Federal Court found that Mr Iannuzzi, as the sole director of Veritas Advisory Pty Ltd, had been systemically negligent in his responsibilities as a liquidator over an extended period of time, and across more than 23 companies.
This is the first time Federal Court proceedings have been launched by the ATO, using the recently enacted provisions of the Corporations Act 2001, to take on the facilitators of schemes designed to avoid paying tax. The Court found that Mr Iannuzzi’s behaviour was ‘certainly reckless’ and that he was ‘not a fit and proper person to remain registered as a liquidator’.
The sanction in Mr Ianuzzi’s case shows that the ATO will take concrete measures to keep criminal phoenix activity facilitators accountable by removing these facilitators from the business environment in which they have acted.
Illegal phoenix activity occurs where a new company is created to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors, contractors and employee entitlements. Illegal phoenix activity can involve breaches of directors’ duties, fraud, or removal of assets by company officers, under the Corporations Act 2001. Penalties include large fines and up to 5 years imprisonment for company directors and secretaries.
The law holds each of those involved in the activity, including any pre-insolvency adviser, valuer, liquidator and dummy directors, to be equally responsible, particularly where the ATO can prove that these people aided, abetted, counselled or procured a director to engage in illegal phoenix activity.
The economic impact of potential illegal phoenix activity is estimated to be around $5.13 billion per year. This amount includes unrealised payments to small businesses, individual contractors and suppliers as well as unrecoverable tax debts.
The ATO leads the 37-member Phoenix Taskforce, which protects public finances by combating illegal phoenix activities.