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Wednesday, 29 February 2012
Page: 2359


Mr BUCHHOLZ (Wright) (18:03): I rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. Predominantly it is broken up into two sets of measures. The first set of measures contained in this bill strengthens the powers of the Australian Securities and Investments Commission to place companies into liquidation. The second set of measures in the bill seeks to facilitate future requirements of public notices in corporate internal administrations to be published on a single, publicly available website.

This bill is meant to enhance the ability of the Australian Securities and Investments Commission to combat phoenixing activity. The bill gives ASIC significant new discretionary powers to place a company into liquidation. These powers can be used in a range of circumstances. If a company is six months late in responding to a compliance notice and has not lodged other Corporations Act documents in the preceding 18 months, ASIC has the capacity to wind it up. If ASIC has no reason to believe a company is carrying on a business and no objection to liquidation is received from the directors, if a company's review fee has not been paid within 12 months or if a company has been reregistered in the preceding six months and ASIC has reason to believe that it is in the public interest to place the company into liquidation, ASIC has the capacity to wind it up.

The bill also alters the publication requirement of corporations' insolvency notices to allow for publication on a single, ASIC administered website. Finally, the bill establishes a duty of receivers, administrators and liquidators to notify the Secretary of FaHCSIA upon their appointment to a company that is a Paid Parental Leave employer.

Phoenix activity occurs when the directors of a company deliberately misuse the corporate form with the intention of denying unsecured creditors access to the assets of the company in order to meet their unpaid debts. Typically, the activity is associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The directors then place the initial company into administration or liquidation with no assets to pay employees' entitlements or to pay creditors or the tax office and then carry on merrily conducting business in the new company structure.

It costs the economy billions of dollars a year and, despite a multitude of reforms in the past few years, phoenix activity remains strong. Research from Dun and Bradstreet reveals that 29 per cent of companies that became insolvent in 2009-10 had at least one director who was previously involved with a wound-up entity, compared to just 10 per cent during the 2004-05 financial year. The coalition does not support the activity of phoenixing, where businesses break the rules to profit for themselves at the expense of employees. There is no way that the coalition supports that type of behaviour. However, we do have concerns with the way in which this bill presents more powers to ASIC to administer, and we do not believe it will meet its objectives.

According to the Australian Taxation Office, there are about 6,000 phoenix companies in Australia and 7,900 to 9,000 directors who will have personal liability under this legislation. Why is it that, with the powers that already exist with the tax office and ASIC, these companies are able to walk in the very next day and get a new tax file number? From a business perspective, it beggars belief that they can do that. There are so many tools available to departments, to government, to prohibit this. The measures that are being put forward in this bill to try to curb phoenixing are like using a sledgehammer to break a walnut. If we just applied some common sense to this, we would get a far more effective outcome. I have asked this question of the Treasury and the tax office, and no-one can answer me. I find it difficult to comprehend.

Phoenix activity was first exposed in 2001, during the Cole Royal Commission into the Building and Construction Industry, which uncovered at least 18 cases of it. Since then, it has been identified in several other industries, most notably in property, information technology, telemarketing and other labour-intensive industries. Of course the coalition is strongly opposed to these kinds of fraudulent activities and supports all measures to stamp it out. Phoenix activities can have a significant impact on suppliers, contractors, customers and employees who are denied their entitlements and, if unchecked, can erode the reputation of the Australian business community and reduce confidence in our world-class corporate regulatory framework. However, it is disappointing to see the government approaching this issue in their customary ad hoc and confused fashion. As Australia's corporate regulator, ASIC have a rightful role to play in properly overseeing and enforcing existing legislation, but their application of rules and regulations needs to be properly scrutinised by parliament to ensure it is being done in accordance with the original intent of the legislation. My concern is that this bill does not allow for the appropriate parliamentary scrutiny of the new powers provided to ASIC.

One of the major contributing issues to phoenixing activity is that the regulators are not fully utilising the existing powers available to them. Other issues include a lack of prosecution, underresourced regulators, insufficient follow-up on complaints, and inadequate penalties to act as a deterrent. In this context, the case for additional new ASIC powers seems exceptionally flimsy. It often seems as if every second bill that comes through this place somehow involves increasing the size of the bureaucracy in one or more government departments, putting more bureaucrats on the ground. Whatever the reason may be, if ASIC are not currently utilising the powers already available to them then it is pretty hard to understand why they need more. Why does this bill strengthen ASIC's powers when they are already underutilising the powers that are available to them? We fundamentally believe that that part of the bill is flawed.

The coalition is also concerned that the government seems to be taking an ad hoc approach to the targeting of fraudulent phoenix activity by introducing many pieces of related legislation in a thoroughly uncoordinated manner. By way of example, I refer to the current bill and the previous bills, which were heavily criticised in the House of Representatives Standing Committee on Economics.

On this side of the chamber, it is our belief that the government has failed to outline a coherent strategy for tackling phoenix activity. This is evidenced by the failure to define 'phoenixing' in this bill. I challenge anyone to find, in any of the government paperwork, what the definition is. If you look hard, you may find a legal definition on the ASIC website, but that is about the only place where it starts to get serious about what the definition of phoenixing is. The government's failure to outline a coherent strategy is also shown by the lack of evidence about how additional powers will better enable ASIC to tackle the problem; ongoing concerns about the regulators not using current powers to investigate and take action; previous assertions by the government that other actions and previous expansions of regulatory powers would be more effective; and the absence of any recognition of the role and capacity of liquidators to tackle the problem. For these reasons, I believe the most appropriate course of action for the government is to withdraw the current bill and instead engage in some meaningful consultation to address the completely legitimate concerns of the relevant stakeholders. Only then will it be in a position to take a suitably coordinated legislative approach to what we all agree is an extremely serious matter of public policy.

As a minimum starting point, the government ought to consider the proposals paper on combating phoenix activities released in November 2009 by the Hon. Nick Sherry, who was at that stage the Assistant Treasurer. May I add that, in the short time between then and now, we have seen five Assistant Treasurers. There were 11 proposals for combating phoenix activities in that proposals paper. None are reflected in the new ASIC powers—not a single one. It stands to reason that the 11 proposals would be a good place for the government and the new Assistant Treasurer, whoever it is—possibly we will find out tomorrow or the next day—to start when they go back to the drawing board. If the government fail to see the sense of going back to the drawing board, this bill at the very least needs to be thoroughly examined in the Senate Economics Legislation Committee.

Let us be clear about this. The problem is not going to go away, because business conditions at the moment are some of the worst I have ever seen. Small business start-ups last year were down 95 per cent. How is that for business confidence, Mr Treasurer? Analysis by Dun and Bradstreet found that business failures last year were up 40 per cent, and CEO Christine Christian is on the record as saying that Australian business failures have trended steadily upwards since 2008, growing more than 30 per cent over the last three years. This coincides with Dun and Bradstreet's downgrades during the December quarter of more than 128,000 firms that are likely to experience more financial distress over the coming 12 months.

When we talk about downgrading business confidence and the increased potential of phoenix activities as businesses continue to find it hard to make a living, I find it incomprehensible that every day when I walk into this place the opposition are constantly browbeaten by the Treasurer and the frontbench on the strength of the economy and how great things are. I encourage those members of the frontbench who want to take that line about the strength of the economy to go have a chat to some businesses when they return to their electorates. I had the opportunity to speak with one of my electorate's business owners the other day. He employs 80 blokes in fruit and vegie transport, and he said to me: 'Scotty, I have never seen it so tough. The banks are squeezing us. I've been around the industry a long time and I have never seen it as tough as this.' There is quite a contrast between the story we hear in parliament and what is being said out there on the street.

It is this type of economic climate where we are likely to see an increase in the amount of phoenix activity as more and more businesses get into financial difficulty. This is not to defend the actions of the fraudsters who try to skate away from their creditors; it is simply to acknowledge the true potential magnitude of the problem. For that reason, it is crucial that we get this right. It is vital that we protect those small operators, contractors and employees who tend to be the victims of phoenix activity. In its current draft, I am convinced that this legislation is not up to the job. I have some other issues that I want to raise, but I am going to run out of time.

Mr Ripoll: No, go for it.

Mr BUCHHOLZ: Go for it? I briefly touched on this earlier—that is, the government's position with reference to phoenixing with the powers available to them that already exist. In wrapping up, we have 6,000 known phoenix operators. The government can put a number on them, so we know how many there are. We also know there are 7,500 to 9,000 directors involved in phoenixing. So why is it that the department, the government, Treasury, the Australian Taxation Office or ASIC, with the powers that are available to them at the moment, which are underutilised, is allowing these repeat offenders to turn around and start trading the next day by getting access to another tax file number. I just think that it is a simple remedy and the way that the bill presents at the moment, I do not believe that the coalition will be supporting it.