A former Noodle Box franchisee has appeared in court on two charges of fraudulent conduct in relation to allegations of illegal phoenix activity, following an investigation by the Australian Securities and Investments Commission.
The corporate regulator said on Monday that Tasmanian woman Amy Timko had appeared in the Court of Petty Sessions in Hobart on December 16.
Timko is the former sole director of A Twisted Little Company Pty Ltd (ATLC), and operated a number of Northern Tasmania Noodle Box franchises. It is alleged that Timko entered into a bill of sale for the plant and equipment of the ATLC business to be sold to another entity for $30,000 and authorised the transfer of the items to the other company without receiving the $30,000.
ASIC also alleges that Timko placed ATLC was in liquidation after the transfer of the equipment to the other company, and reassigned to the other company a number of leases for the operation of Noodle Box stores that had been entered into by ATLC. According to ASIC, this was contrary to the agreement between ATLC and the franchisor, Noodle Box Franchising Australia Pty Ltd.
In a statement, ASIC said the transfer of equipment and reassigning of leases may have meant creditors of ATLC were denied access to the company’s assets.
The ASIC investigation comes after Noodle Box reported the alleged phoenix activity to ASIC. A spokesperson for the company told SmartCompany Noodle Box has been working with the regulator since that time.
“We are particularly pleased ASIC have been able to use the information we provided to pursue the matter further in the courts. We will continue to provide assistance to ASIC as required,” a spokesperson said.
Noodle Box says the franchises in Tasmania, the location of which has not been specified, have since been re-opened under by new owners.
“Noodle Box have been able to successfully re-open each of the restaurants in Tasmania with new franchise partners,” a spokesperson said.
Illegal phoenix activity—where directors liquidate companies after transferring assets to a new entity so that the business can “rise again”—is an area of significant concern for both regulators and creditors who may lose out when this kind of behaviour takes place.
However, tracking illegal behaviour in this area has been difficult in Australia, due to the lack of a specific “phoenix activity” offence. A 2015 Productivity Commission report on the issue estimated the potential costs to the community to be anywhere from $1.8 to $3.2 billion, with the number of phoenix companies currently in operation estimated to be in the thousands.
The costs, as outlined in the Productivity Commission report, affect three groups: employees, creditors of the companies, and governments, in terms of lost revenue.
The fight against these behaviours has been ongoing; in June 2015 for example, the Australian Tax Office visited a number of Sydney businesses without notice as part of a crackdown on phoenix businesses. In 2014, regulators were focused on potential phoenix activity in the construction industry, with ASIC telling SmartCompany at the time it was undertaking a “surveillance campaign focusing on directors who have a history of being involved in alleged illegal phoenix activity to try to prevent any illegal future behaviour”.
One possible tool to tackle illegal phoenix activity is the introduction of a Director Identification Number, which has been recommended by a team of researchers in the area from Monash University and the University of Melbourne. This would allow regulators to track individuals involved in multiple failed enterprises and prompt investigations when there are concerns about someone being involved in a string of liquidated ventures.
Patrick Coghlan, commercial director of credit reporting bureau CreditorWatch, believes a director identification number is an almost inevitable policy move as both the ATO and ASIC become increasingly proactive at tracking individuals potentially involved in phoenix activity, with watchlists of directors now being established.
“We’re seeing improvements every year … government is a slow moving machine, but they’re definitely being proactive about it,” Coghlan told SmartCompany.
The case against Timko is being prosecuted by the Commonwealth Director of Public Prosecutions and will return to court in March 2017.
SmartCompany was unable to contact Timko prior to publication.
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