Law of Investment
LAW OF INVESTMENT 5
Tocounter attack the increased cases of phoenix activity new laws wereintroduced in June 2012. A phoenix activity takes place when a firmis liquidated due to too much debt to an extent it is unable to payup. Such a firm leaves behind unpaid employee entitlement and otherdebts, as it shifts its assets to new business to begin doing tradeafresh without any liability to the former company. The case of LisaHo is phoenix activity related case. To evade taxation and debtpayment Lisa Ho planned a phoenix activity of selling bits of hercompany to her businesses and others. The Common Wealth governmentsin order to reduce the incentives for managers to take part inphoenix activity laws have been set up. These laws explain thatmanagers are to be held liable for the unpaid debt and the unpaidtaxes which the company has failed to pay.
Inthis case Lisa Ho is liable to pay a sum of $17 million owed by hercompany if found guilty. As the managing director Lisa Ho had aresponsibility of compensating her credits through the sale of thecompany assets. Rather than do that she chose to use her manager’sto sale the company assets to her other company. The case of Lisa Howhich is still under investigation with trying to figure out thedirector’s responsibility. The areas to be investigated include theuntruthful disclosure income thus leading low tax returns andpossible phoenix activity if evidence of phoenix activity is foundthen the case is likely to end up in court.
Overthe years, Lisa Ho Designing Company has been running with itsfinancier being Ms. Lisa Ho whom the business is named originatefrom. Her company had been following the law to the letter and moreso the government on its side had been undertaking its responsibilitytoo. Lisa Ho Designing Company and all the legal issues surroundingthe company were centered on the third source of the law.
Overthe years, this business had been operating smoothly due to thesmooth coordination from the management and the Australian Governmentuntil early 2009 (Atkinson et al.2012). During this year, themanagement of the Company became so reluctant and slow to act tocontrol the problem of funds mismanagement. The cause of the problemis seen as some individuals who wanted to embezzle some money throughsome fake transactions. At one instance, there was a rise of an issuewith getting good trading terms between the company and theinterested suppliers. Due to lack of suppliers, the company had ashortfall in raw materials an issue that led the Company’s outputto reduce.
Anothercontributing factor that led to the swaying of the company is theover-purchase of materials that went for a price of one million U.Sdollars. This extra money that was channeled to payment of theover-purchased materials was not used for the intended purpose andthus led to some transactions being stagnant. Furthermore, therearose a claim that the investment’s savings over the previoustrading year had been misquoted by a staff, who had some connectionto the Managing Director of the business. This scenario led to a lossof funds worth 335,000 U.S dollars.
Shortageof capital in the business made the management decide to sell part ofthe business with the purpose of reviving it and settling some of thedebts. In this selling of the investment, the management targeted atotal sum of 1.7 U.S million dollars. In the 2011-2012 trading year,reports about the progress of the company showed that the company hadincurred a loss of 2.3 U.S million dollars. Due to this report, themanagement of the company decided to fire some staff with the purposeof saving capital that would be used to pay them. The move helped thecompany realize some savings amounting to 1 million U.S dollars.Moreover, the company’s initiator, Ms. Lisa Ho put up for sale someof her personal belongings with the aim of raising the amount of 1.7U.S million dollars to channel into the business. Ms. Lisa Ho alsorented some money from a friend and injected into her business.
AustralianGovernment intervened by renting some 188,731 U.S million dollars tothe Lisa Ho Designing company with the aim of saving the prevailingfinancial situation in this company. Selling of the business to thegeneral public was also another means used to acquire money by thecompany. This project was later dropped in April 2013. Due to thewavering financial situation in the business, creditors were not paidtheir money and this led the business to having debts to itssuppliers summing up to 17 million U.S dollars. The suppliers blamedthe Chief Executive Officer for not understanding the financialpotential of the company. When the financial crises accelerated, Ms.Lisa Ho decided to sell the business to the Lisa Ho IP Holdings amove that was seen as a way to evade paying the tax (Gaimster, 2011).The action was viewed as a move to phoenix the investment.
Hannigan,B. (2012). Companylaw.Oxford, U. K: Oxford University Press.
Gaimster,J. (2011). Visualresearch methods in fashion.S.l.: Berg Publishers.
Atkinson,L., Llewellyn, M., Mylne, L., & Crittall, R. (2012). Australia.Hoboken, N.J: Wiley