Sponsorship cancellation on a phoenix business

Sponsorship cancellation is one of the actions the Department may take against a Sponsor if they breach certain sponsorship obligations. Employer Sponsored visas require the employer to become an approved Sponsor before they can sponsor employees. If they undergo sponsorship cancellation, this means they can no longer sponsor overseas workers for visas. 

In the case of Panduss Pty Ltd (Migration) [2021] AATA 1364, the Tribunal overturned the decision of the Department not to cancel the Standard Business Sponsorship for a Phoenix Business. 

What is a Phoenix Business?

A phoenix business is where an existing company creates a new company to continue the business. Most of the time, this is illegal where the company is deliberately liquidated to avoid paying outstanding debts including taxes, creditors etc. 

Sponsorship cancellation can occur where a business is found to be a phoenix business of another entity which is tainted with adverse information. 

Facts

In this case, the Sponsor was approved as a standard business sponsor on 03 June 2016. on 01 October 2019, the Department decided to cancel its sponsorship and to bar it from making further applications for 12 months because it no longer met the criteria relating to ‘no adverse information’. 

All sponsorship applications are assessed against a ‘no adverse information’ requirement to ensure that they are suitable to become sponsors. This includes adverse information known about any entity associated with the applicant. 

Here, the Sponsor was found to be associated with another entity which has since become liquidated. That entity was liquidated and wound up due to unpaid debts to the ATO. The director of both entities were brothers and, in fact, the Tribunal found that the director of the liquidated entity remained very influential of the affairs of the Sponsor (i.e. the new entity) even though he was not named as the director. At [29], the Tribunal said that ‘I am comfortable to describe Panduss as the ‘phoenix’ of the liquidated entity; indeed, it is a textbook example of the ‘phoenixing’ of an entity’. 

Findings

The definitions of ‘adverse information’ and ‘associated with’ were changed after 18 March 2018 to catch much broader situations. Prior to this, the definition of ‘associated with’ was much more restrictive and was easily circumvented. 

Whilst it is clear that the phoenix activity may be sufficient to fall within the current legal definition of ‘associated with’, it would not have been able to fall under the definition prior to 18 March 2018. 

In this case, the regulation allowing the Department to take action (e.g. sponsorship cancellation) is where a person no longer satisfies the criteria… at the time the person was approved. As the Sponsor was approved on 03 June 2016, this meant the older definition of ‘associated with’ was in force. This protected them against the sponsorship cancellation and other action to be taken by the Department on this basis. That is, per the regulations at the time they were approved, they were not affected by any adverse information by association to the older entity. 

Although this may have been the case for this scenario, most phoenix activity nowadays will still be caught by the provisions given the broad nature of the legislation. It is broad enough to cover familial and professional relationships. Therefore, if you are unsure, you should always enquire with a professional to confirm. 

You may consult with us to find out more.