Q. Diffrence between phoenix activity and  honest behaviour?

There are circumstances where a business has been managed responsibly and fails, and after a period of time, its directors are able to continue operating the business under another corporate entity. This is not, in and of itself, an illegitimate use of the corporate form.

For example, a business may go into administration and in the case of many high risk businesses "assets, equipment, and even the business itself are largely unsaleable and consequently a liquidator will often end up disposing of the assets of the failed company to directors of the company who hope to resurrect the business with reserved personal finances".

The key distinction between fraudulent phoenix activity and the honest resurrection of a company is the intent with which the liquidation is undertaken.

Fraudulent phoenix

activity involves the liquidation of a company in order to avoid debts with the full intention of continuing the business after the liquidation. Fraudulent phoenix activity also usually involves the intentional structuring of a company in a way that allows directors to avoid meeting their obligations to pay taxes, employee entitlements and debts owed to other businesses.

Stakeholders all highlighted that any definition must stress the deliberateness or intent with which a fraudulent phoenix business liquidates in order to avoid debts. It was also emphasised that in cases of honest behaviour, the revival of businesses should not be discouraged. Some stakeholders (such as the ATO) used the term 'fraudulent phoenix activity' to distinguish between the manipulation of the corporate form to avoid debts and the honest 'resurrection' of a company that had been liquidated (which was sometimes referred to as 'honest' phoenix activity). Other stakeholders used the term phoenix activity to describe the liquidating of a company to avoid debts and used other terms for the honest resurrection of a company.