Mr Price said illegal phoenix activity often involves failure to keep good books and records, or indeed any books or records.
“So if you’re trying to build a circumstantial case about what someone’s intention was, without any reference to books and records, that is actually really problematic,” he said.
Mr Price said the regulator’s job was made still tougher by the lack of a legislative definition of illegal phoenix activity which would be addressed in new laws before the parliament.
“There is certainly draft legislation that would introduce a specific offence for phoenixing into the Corporations law, the laws that we administer. That would help deal with a lot of these issues that we’ve got,” he said.
A report published by the government last year estimated illegal phoenix activity costs the economy $2.85 billion to $5.13 billion a year.
The government reintroduced its Combatting Illegal Phoenixing Bill to parliament in July to provide new criminal offences and civil penalty provisions targeting illegal asset stripping activity including penalties of up to 10 years imprisonment for criminal offences.
It is probably not strong enough but it’s better than what we have at the moment.
Assistant Treasurer Michael Sukkar said the laws would give regulators better tools to tackle illegal phoenix activity while minimising any unintended impact on legitimate business restructuring.
“The Morrison government is committed to ensuring our regulators are equipped with the resources they need to effectively detect, deter and punish corporate misconduct,” he said.
Opposition financial affairs spokesman Stephen Jones said Labor would back the legislation but argued it did not go far enough.
“The only thing that will make an enduring change in this area as far as we are concerned is advancing the director identification numbers you can then track these directors engaged in recidivist behaviours,” he said.
Small business ombudsman Kate Carnell said the proposed legislation would give the law “some teeth” in the space.
“It won’t mean that illegal phoenixing ceases to happen but what it will do is create some solid law around the space,” she said. “It will make it an offence to move money out of a company into another company which doesn’t exist at the moment. It is probably not strong enough, but it’s better than what we have at the moment.”
Andrew Fielding, national lead for BDO’s business restructuring team, said liquidators often see potential illegal phoenix activity but don’t have the funding to chase it up.
“There are a lot of pre-insolvency advisors around, not necessarily licensed liquidators, and they advise directors and often the directors themselves don’t know phoenixing can be an illegal transaction,” he said.
“Pursuing the insolvency advisors is probably the best way to deal with phoenixing.”
Mr Fielding said tougher legislation would have limited impact without funding for liquidators for investigation.
“It still comes down to someone having to investigate and prove the phoenix,” he said. “Who is going to fund the liquidator to come up with the proof? The frustration here is being a liquidator and not being able to do the investigation.”
Cara is the small business editor for The Age and The Sydney Morning Herald based in Melbourne