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Freezing orders against alleged phoenixers

The Australian Taxation Commissioner has succeeded in having provisional liquidators appointed to alleged “phoenix” companies associated with a Philip Whiteman.

The Commissioner’s case was that the corporate defendants were  

“collectively operating a business of defrauding creditors involving “phoenix” activities for their clients … the corporate defendants are controlled by Mr Whiteman, who is the de facto director of all of them; … the persons registered as the directors are “puppets”; and two of the corporate defendants, A & S Services and AHW Solicitors, are phoenix companies themselves”.

A prima facie case of each of these claims was made out on the evidence. The Judge found there was “cogent evidence of systemic non-compliance by all the corporate defendants with respect to their taxation obligations”.

Justice Davies continued: 

“The systemic non-compliance with taxation obligations in itself provided a substantial basis for the view that it is reasonably likely that a winding up order will be made against the corporate defendants on the just and equitable ground. I also considered that it can be inferred readily on the evidence that the disregard of taxation obligations must have been deliberate. Having regard to the nature of the business activities conducted by the companies, the systemic non-compliance makes it improbable that failures were other than intentional, justifying in my view an urgent need for the appointment of provisional liquidators on an ex parte basis.

The appointment of a provisional liquidator ex parte is an extreme measure only to be countenanced where no other solution is available but the systemic disregard of taxation obligations, the evidence of the involvement of Mr Whiteman in each of the companies, the evidence of Mr Whiteman’s prior involvement in a phoenix operation and the evidence suggesting fraudulent phoenixing activity in establishing AHW Solicitors raised very serious questions about the corporate governance and operations of the corporate defendants and justified the appointment of provisional liquidators on an urgent basis to protect the assets of the companies”.  

Freezing orders were made against assets of the defendants under FCR Rule 7.35(4) which allows such an order where the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied by reason of the person removing assets from the jurisdiction or disposing of, dealing with or diminishing the value of the assets, so that if the applicant succeeds the applicant will not be able to have the judgment satisfied. Deputy Commissioner of Taxation v A & S Services Australia Pty Ltd [2017] FCA 437

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