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Thursday, 1 March 2012
Page: 2455

Mr CIOBO (Moncrieff) (10:05): I am certainly pleased to rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. As the Deputy Chair of the Standing Committee on Economics, I note the committee was a tipping point in terms of the discussion and debate surrounding whether or not the coalition would support this particular piece of legislation and whether or not we would support the initiative that the government has taken.

Let us start with the areas that we have in common. The reality is that the coalition, like the government, is concerned about phoenixing activity. There can be no doubt that directors participating in knowingly setting up companies whereby they transfer assets from indebted company A to unindebted company B—with the full intent, by doing so, of avoiding their obligations and indebtedness from company A—is among the worst types of activities that companies can participate in. The consequences of phoenixing activity are significant. Unfortunately, we see it all too often on the Australian economic landscape. There are estimations that the economic cost to the Australian economy of phoenixing activity is around $2½ billion a year. As well, there is a very real human cost associated with phoenixing activity. There are those who are left without access to entitlements and there are creditors who are left without access to cash flow, which of course has a cascading effect across corporate Australia. In particular, those who are generally most affected are tradies.

Phoenixing activity is something that does require action. But this is not a new thing. It is not that we have become aware of phoenixing only in the last 12 months. Indeed, there have been a suite of inquiries, of consultations and of previous pieces of legislation that have gone toward addressing phoenixing activity. Unfortunately, though, because this bill was not put to the House of Representatives Standing Committee on Economics—or, rather, was put to it but was then discharged by the Labor members of the committee—we were not able to investigate in any way whether these increases in ASIC's powers to notionally address the issue of phoenixing activity are actually the right medicine for the problem. We were not able to take into account the concerns of, for example, the Australian Institute of Company Directors, among others. We were not able to take into account feedback from the small business sector. We were not able to take into account feedback from across the corporate community about whether the big increase in ASIC's powers that would be provided for under this legislation is in fact what is required to address phoenixing activity. We know that there are already at ASIC's disposal a raft of corporate powers to deal with the phoenixing activity. We know that ASIC has the ability to, for example, ban company directors for up to five years—or longer, with a court order—if that is what they seek to do, and they can do that with phoenixing activity.

Why has that not proven to be effective? We do not know. We have not been given the opportunity to know, because this bill was discharged from the economics committee. That is the reason the coalition has adopted what I think is a good approach to this piece of legislation—that is, that the government is required to live up to a certain burden of proof to demonstrate why ASIC's powers should be expanded and why this will be effective at addressing phoenixing activity. In the absence of robust arguments put forward by the Labor Party about why this is a requirement and why it will be effective this time—as opposed to previous occasions when it was, apparently, shown to be ineffective—the coalition cannot stand by and enable ASIC's powers to be significantly increased. That would have a consequent impact across the Australia community—in particular on small businesses, due to the raft of additional compliance burdens and concerns when dealing with ASIC.

In many respects it is that difference in approach that underscores the difference in philosophy between the Labor Party and the coalition. We stand ready and willing to help to address the issue of phoenixing activity, but we need to hear solid arguments. We need to hear robust proposals about why certain initiatives that are being looked at with a view to being undertaken will prove to be effective. I know that many in the corporate sector take the view that the principal problem here is not so much the powers available to ASIC or that there is not scope already available under the Corporations Act, for example, to deal with phoenixing activity but, rather, an inability for ASIC to appropriately tackle the issue of phoenixing because perhaps they are not appropriately resourced. The government wants to avoid scrutiny on this. The government does not want to 'let the sun shine in', which I believe were the words the Prime Minister used. It seems unfortunate that that would be the approach adopted by the Labor Party—an 'our way or the highway' attitude towards this bill. The fact is that there could easily be a bipartisan approach to this issue. There could easily be the coalition and the Labor Party working together.

It is not good enough for the Labor Party to say, 'It's our way or the highway'. It is not good enough for the Labor Party to say, 'We're going to introduce this raft of new powers for ASIC and you should get on board.' The fact is that powers exist already. The regulator has at its disposal a number of initiatives that can be undertaken. Company directors can be prosecuted for phoenixing activity. If phoenixing activity is rampant, why is it not working? Why is ASIC not already using the powers at its disposal? We have not heard those arguments being put forward by the Labor Party. Instead, we are just told: 'This suite of new powers should be delivered up to ASIC and if the consequences are that it's a massive additional piece of compliance for the small business sector across Australia, tough luck.' We disagree. We will always stand on the side of small business. We will always stand on the side of those who take the view that there are and should be, appropriately, curbs on the power of government and on its regulators because they need to demonstrate why additional powers are required. It is a basic approach that we apply to policing, so why should it not be a basic approach that we apply to company policing?

The bill before the House today gives ASIC significant new discretionary powers—I emphasise 'discretionary powers'—to place a company into liquidation, and these powers can be used in a range of circumstances: where a company is six months late responding to a compliance notice and has not lodged other Corporations Act documents in the preceding 18 months; where ASIC has no reason to believe a company is carrying on a business and no objection to liquidation is received from directors; where a company's review fee has not been paid within 12 months; and where a company has been reregistered in the preceding six months and ASIC has reason to believe it is in the public interest to place the company into liquidation. Those are broad powers, especially the last one. Many would say, 'Look, don't be concerned. ASIC's never going to do the wrong thing. We just need to trust the regulator to always make the correct decision.' I think a higher level of responsibility is owed. I believe that regulators are accountable, back to this chamber. It is my belief that companies have a responsibility to comply with the law. Where you have rogue companies that are not complying and where you have company directors who are participating in phoenixing activity, of course everyone on the coalition side and I suspect on the Labor Party side would take the view that those company directors should be disqualified. But that is not a good enough justification to give a broadbrush power to ASIC because ASIC takes a view that it is in the public interest that there should be an ability to liquidate a company. We think it is important that the regulator understands that we are willing to work with it, if resourcing is the issue; but we need to know what the problem is. The laws exist now. Why are they not effective? Do not simply hand down, like Moses on the mountain, a new template that says, 'These are the new laws and they shall be obeyed.' Rather, the obligation is upon the Labor Party to demonstrate why these new laws are necessary.

Incidentally, Senator Nick Sherry, a previous Assistant Treasurer with the Labor Party—one of the five or six that Labor has had in the past four years—outlined, I believe, 11 recommendations to deal with phoenixing activity. None of them, not a single one, is incorporated in this bill. This was a Labor Assistant Treasurer—perhaps that is why they have gone through five or six in the past four years—who put forward recommendations on how to deal with phoenixing activity, and those recommendations are absent from this bill. If that does not underscore what a completely ad hoc approach the Labor Party has taken to this issue then I do not know a more compelling argument than that. The fact is that there is scope to take a much more logistically appropriate and strategic approach to phoenixing activity.

I am also concerned about comments that were made, for example, by the chairman of the law committee for the Australian Institute of Company Directors. Professor Bob Baxt, who is a distinguished competition law expert. He made some comments to a previous inquiry that the House of Representatives Standing Committee on Economics undertook at the end of last year—when I was not the deputy chair—which was dealing with the issue of phoenixing activity. He said:

There is too much legislation introduced on the basis of, 'It's a good idea; let's do something and we will see where it takes us.' … For the phoenix company and the phoenix director, there are processes in place which suggest that the regulator has the power to deal with them. Why should all of us be subject to those rather burdensome laws just because there are one or two who may have escaped the safety net?

That illustrates the difference in the philosophical approach between the Labor Party and the coalition. When we say we are trying to get the monkey off the back of small business, when we say we are trying to nurture an entrepreneurial spirit within the Australian community and when we say we understand the trials and tribulations of being a small business person, we mean it. That is the reason we take positions on, for example, this bill. We have not heard the threshold being met by the Labor Party in its justification for why these additional powers are warranted. The Labor Party is devoid of any motivation, it seems, to outline the case. That is why we say: put this legislation now to a Senate inquiry, given that it was discharged from the House of Representatives Standing Committee on Economics. Let us put it to a Senate inquiry and let us get the evidence out there. Let us understand why this suite of new powers is a requirement.

Perhaps the reason the Labor Party just does not get small business is that there is no small business man or woman among them. There may have been one or two who have walked into a small business. I am sure the member for Kingsford-Smith, who is at the table, has walked into a couple of small businesses in his time. In fact, he is actually probably the closest thing they have got to a small businessman on that side of the chamber—although it was a little bit more than a small business, wasn't it? There is no doubt that those opposite just do not understand the mind of a small business man or woman. They do not understand that compliance is a big issue. Small business people do not have people working away in offices in tall towers making sure that they can tick all the boxes and dot all the i's and cross all the t's when it comes to compliance; rather, the compliance burden is something that is met by the small business principal themselves. More often than not it is a husband and wife team and more often than not there is only one employee in the business, and that is the owner. These are the people who face the consequences of big increases in ASIC powers and big increases in compliance. For this reason, we say there is a burden of proof that must be met by the Labor Party if they want to increase those powers.

Let us put this legislation through the Senate inquiry process. I say to the government: it is time to stop running away from scrutiny; it is time to actually justify why additional powers are required, if, indeed, they are required; and it is time to show why existing laws are falling short, if, indeed, they are falling short. On each of these basic tests, I believe any reasonable Australian would understand that these are not high thresholds to meet. They are basic questions that should be answered. If they were answered by the government then I have no doubt that we would actually have a bipartisan position on the legislation. Until such time as the government answers those questions and until such time as the government meets that burden of proof, we will stand opposed to additional compliance. We will stand opposed to broadbrush increases in powers for ASIC, until the government has demonstrated why they are necessary and how they will work.