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Thursday, 1 March 2012
Page: 2463

Mr IRONS (Swan) (10:35): I rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. I have heard the contribution of the member for Newcastle during which she said this legislation would deal with bad company directors. The problem with the legislation, which goes to the nub of it, is that there is no direct definition of 'phoenixing'. This is the argument that the coalition makes.

I say at the outset that I have a background in small business and own a small business that I started in Perth in 1988. The member for Wentworth is present in the chamber, but my business is in no way relevant to the size of his business and his background in business. I was fortunate enough to be mentored and advised in business by Rob Dunn. One of the many lessons I learnt was fiscal discipline, along with 'don't be afraid to build up assets in the company', which is the company's strength, particularly when dealing with banks and creditors. This bill also goes to the nub of dealing with assets of companies.

There are not that many people in this parliament who have business experience, which is disappointing. I know that there are members on this side of the House who have run their own business, like the member for Fadden, who will speak on this bill later on. We have heard from the member for Moncrieff who put the coalition's position so well and spoke of our attitude towards phoenixing and how that should be dealt with in the legislation. If we look across to the Labor benches we see that there are very few who have the experience of running a business. Certainly, being a lawyer for a union does not qualify you to say that you have run a business. Unfortunately, unless you have walked the walk you are sadly behind the eight ball about how business works and how insolvencies in business come about. It shows in the quality of the bill that we are debating today. Before I turn to the bill, I want to speak on this government's record on small business. Before the 2007 election, the Labor Party made a commitment, a promise to the Australian people that there would be a 'one in, one out' approach to regulating business in order to cut red tape. Since Labor was elected it has introduced 16,173 new regulations and only repealed 79, clearly breaking its 'one in, one out' promise to cut red tape. That is 204 new or amended regulations for every one repealed. This is a spectacular broken promise by this government, to go with the carbon tax and the private health insurance broken promises, and it is one that is being felt by many thousands of businesses around Australia and in my electorate of Swan.

In the area of compliance, there is a clear difference between the coalition's approach and the Labor Party's approach to small business. The coalition has a deregulation task force and is committed to reducing red tape to encourage employment in this sector during a tough time. The Labor Party, as I said, have introduced over 16,000 regulations in just four years. They just do not understand business, its difficulties and its importance to the economy during difficult trading conditions. I heard the member for Robertson saying that their side of the House do get business and that they value that small businesses are the major employers of people in Australia. Well, I ask the member and all members on the other side of the House to come into this place and explain to small business why you keep punishing them with new regulations and taxes.

As an example of more punishment to small business, I quote from an article in the Australian, about the sudden decision to wind up the $320 million solar hot-water program, which:

… left the industry reeling and sparked warnings that up to 7200 jobs were in jeopardy.

The Parliamentary Secretary for Climate Change, Mark Dreyfus, angered the solar hot-water industry by giving five minutes' notice on Tuesday night that no more applications for solar hot-water rebates would be accepted under the Renewable Energy Bonus Scheme.

The report went on to say:

The latest solar row follows turmoil in the insulation industry after the pink batts scheme was scrapped in the wake of poor installations, training and accountability, and the blowout in the Green Loans scheme, where the assessors were swamped with demand.

The government was also forced to act to end a glut in renewable energy certificates sparked by generous subsidies for rooftop solar panels. The glut forced down the price of renewable energy certificates and sparked an investment strike in big clean energy projects.

Clean Energy Council acting chief executive Kane Thornton said the "unexpected" winding up of the solar hot-water program would immediately hit sales and "put more than 1200 manufacturing jobs and 6000 installation jobs at risk … Cutting this program without warning in the middle of a financial year is yet another example of stop-start policymaking that continues to plague the entire clean energy sector".

…   …   …

Rheem Australia government relations manager Gareth Jennings said his company, which makes the Solarhart range, was left holding millions of dollars in stock for which there may no longer be a market.

…   …   …

Solar hot-water system manufacturer Dux said it had been expecting the scheme to end on June 30 and many dealers and plumbers around Australia had expressed "disbelief" at the decision. "This was completely out of the blue," general manager Simon Terry said.

Unfortunately, the bill before the House today is yet another messy example of the government's lack of understanding, and it needs some serious work before it should be allowed through the House of Representatives. This bill attempts to tackle the practice of 'phoenixing' or 'phoenix activity', which, as the shadow minister has said, is typically 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 employee entitlements or to pay creditors such as contractors and the ATO. Meanwhile the same directors continue the business using the new company structure.

The coalition is strongly opposed to fraudulent phoenix activity as it undermines confidence in Australia's business community and damages its reputation. However, we are concerned that the government's approach to this important public policy matter is confused, ad hoc, piecemeal and not appropriately targeted. As such, we believe this bill needs redrafting and suggest that the government goes back to the drawing board. If the government is not prepared to do this, this current legislation we are discussing today needs at the very least a thorough examination by the Senate Economics Legislation Committee.

I note that shadow minister Cormann has suggested that this legislation is so poor that a wider inquiry should be undertaken by the Senate Economics References Committee to canvass all options of reforming the law surrounding phoenix activity and make recommendations to the parliament for comprehensive and coherent legislative change. Madam Deputy Speaker, I know it is a strong call to suggest that this legislation go back to the drawing board, that even amending it will not suffice, so let me take you through some of the reasons that have led the coalition to take this position.

There are at least seven problematic areas which need to be addressed, and I think at the outset it is worth reminding the House that this is not the first attempt by this government to get these laws right. Last year, the government introduced a series of different measures targeting some aspects of phoenix activity, in the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 and the Pay As You Go Withholding Non-compliance Tax Bill 2011. After examining these bills, the House of Representatives Standing Committee on Economics made the unanimous and bipartisan recommendation that the government not proceed with those provisions, with the committee in particular noting the concerns from the business community and its representatives that the bills potentially apply to the broad range of directors, whether engaged in phoenix activity or not. As a result of this, the government withdrew the legislation, supposedly to take this on board. However, it would appear from this legislation before the House today that the government has not attempted or managed to solve this problem it set out to solve. In fact, it has yet to provide any indication as to how it will tighten the provisions to better target phoenix activity as recommended by the committee.

Government speakers such as the member for Wills, who is speaking next, need to explain why this issue has not been solved as per the unanimous decision of the Senate committee. The bill should not progress until this matter is addressed. This is the first problem with the legislation. Part of this problem might be the fact that there has been no attempt to define 'phoenix activities' in any of the bills the government has introduced dealing with this area. A proper definition is needed, not only to better target the legislation but to avoid costly legal disputes down the track and give confidence to the sector. We have seen the embarrassment caused to Australia by the legal disputes this government has landed us in. The Malaysian deal High Court fiasco, which the member for Griffith called a 'walk on the policy wild side' was reported around the world—in Asia and on the BBC—and cost our international reputation dearly. There is another storm brewing with the High Court case considering the tobacco plain packaging legislation, and it is difficult to have full confidence in the government's assertion that its legislation is constitutional and will not cost billions of dollars. To have no definition of 'phoenix' in the Corporations Amendment (Phoenixing and Other Measures) Bill 2012 is quite frankly unbelievable, and for this reason alone this bill should not proceed. At present the Australian Institute of Company Directors does not have confidence in this legislation because of this very point. If we refer back to the speech by the member for Parramatta yesterday, she said:

I will go back to some of the comments that the shadow Treasurer made. His comments were about phoenixing more generally. Of course this piece of legislation does not deal with the entire phoenixing behaviour. Of course this legislation does not involve all of the changes that need to be made in order to reduce phoenix activity and protect consumers and creditors from that activity. Of course there is other work to be done.

If the member for Parramatta is saying that, why are we even debating this bill? The member for Parramatta has admitted that this bill is not sufficient.

However, there are other reasons why this bill should not be passed through the House, and these should also be considered by members in the House today as they decide which way they will vote. One of them relates to schedule 1 of the bill, an amendment that allows ASIC to put a company into liquidation in a series of specific circumstances. These circumstances include where a company is at least six months late responding to a compliance notice issued by ASIC under section 348A, 'return of particulars', and has not lodged any other documents under the Corporations Act in the preceding 18 months; ASIC has no reason to believe the company is carrying on a business; and ASIC has reason to believe that it is in the public interest. They include where the company's review fee has not been paid in full within 12 months of the due date. They also include where a company has been reregistered under section 601AH(1) within the preceding six months, and ASIC has reason to believe that it is in the public interest. And they include where ASIC has no reason to believe that the company is carrying on a business, ASIC gives 20 days notice to the company and its directors of the liquidation and no objection is received from the directors or the company within the specified time limits. Before making such an order, ASIC must give notice on the ASIC database as well as publish its intention. ASIC cannot put a company into liquidation under this schedule if an application for the winding up of the company is before the courts.

The coalition is concerned about the significant increase in ASIC power represented by the bill and, in particular, the lack of provisions relating to the parliamentary scrutiny of these proposed powers. One of the major issues identified as contributing to the phoenix activity is that the regulators are not fully utilising the existing powers available to them. Other issues include a lack of prosecutions, under-resourced regulators, insufficient follow-up on complaints and inadequate penalties to act as a deterrent. ASIC is Australia's corporate regulator and has a very important role to play; however, the need for new and additional powers appears superfluous given that the regulators are not fully utilising their existing powers because of a lack of resources or otherwise. There certainly does not seem to be much clear thinking by the government in the way it is proposing to grant these powers over the course of many different pieces of federal legislation and in an uncoordinated manner.

As the shadow minister said, we strongly recommend that the government ceases this ad hoc and piecemeal approach, withdraws the current bill and instead engages in meaningful consultation with stakeholders to address their legitimate concerns and to determine a comprehensive and coordinated legislative approach to this important public policy matter.

There are a number of other, broader issues with this bill, in particular relating to the government's approach to phoenix activity, which have been raised by members speaking prior to me on this matter. These include how effective previous regulatory efforts have been in combating this practice, the appropriateness of available penalties and the lack of recognition by the government of the role and capacity of liquidators in tackling phoenix activity. These unresolved issues also detract from the legislation and should be considered by members.

So where should the government go from here? It should withdraw this legislation and go back to the drawing board. If not, at the very least this government should refer the matter to the economics committee and in fact, given that through its ad hoc approach the government has clearly demonstrated that it has a poor understanding of this area of business, the Senate committee should be drafted in to help consider these issues in a full and holistic way.

For future legislation, the government might consider the proposals paper on combating phoenix activities released in November 2009 by Nick Sherry, who was then Assistant Treasurer. None of the 11 proposals in that paper are reflected in the new ASIC powers outlined in this legislation. It reminds me of the review conducted by the member for Oxley, the Ripoll review, which, sadly for that member, was almost completely ignored by the government. I note that the member for Oxley has also spoken on this bill.

As I and other members on this side of the House have said, this is a poor bill and we will not be supporting it.

Debate adjourned.