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Thursday, 1 March 2012
Page: 2478


Mr VAN MANEN (Forde) (11:34): As I follow the contribution from the member for Deakin, I note he is quite right in the speech he gave about the issues of phoenixing. The problem is that the first part of his speech relate entirely to issues that are not being addressed in this bill, the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. This bill is not talking about dealing with companies that are wound up and are not paying suppliers and contractors. It is about providing access to the General Employee Entitlements and Redundancy Scheme.

But I do agree with those opposite that phoenixing is a cancer that is eating away at the foundation of trust upon which our business community and the broader community are built. It sours relationships and creates distrust that means people can no longer rely on those that they do business with, honouring agreements to supply the product or services bought or to pay for the products or services supplied. That was adequately outlined by the member for Deakin in his contribution. Another interesting thing about this bill is that there is no definition of what phoenixing is. To try to help those opposite I offer, by way of definition, that a phoenix activity occurs when directors 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, in some cases, liquidation—with no assets to pay employee entitlements or creditors. Jon M. Huntsman, in his book Winners Never Cheat, puts it this way:

In prosperous times, people sometimes wander from the financial walkway, blinded by the glitter of gold. The temptation lurks to prolong the euphoria by the easiest means possible.

In uncertain times, people may see dishonesty as the only way to pursue their careers, as the fastest cure to rebuilding wealth, or the only way to keep their heads above water. They may falsely believe they have nothing to lose but it is a slippery slope to be sure.

He makes the point that the most concerning issue is that there is a growing group of people who do not give a damn about others. They are only in it for themselves and they are a growing menace to the values that we, as Australians, hold dear. I will give you a personal example. My father worked as a ceramic tiler in the building industry. There were many occasions during his lifetime of work where builders who he had regularly been working for would close up on a Friday and inform him that his outstanding invoices would not be paid, yet they would be open again on Monday under a new name and ask him to do jobs that had been allocated previously under the old business. I have seen firsthand the consequences of this phoenixing activity. I understand that, rightly, we need to protect employees' entitlements in the event of businesses deliberately undertaking these phoenix activities. But nowhere in this bill is there any reference to people such as my father, a subcontractor, or other contractors and suppliers. How are they going to recoup their losses and payments that they have not received?

Over the years a number of reviews have been carried out to ascertain where improvements could be made to protect people against these cases of phoenixing. I refer to Senator Nick Sherry's Action against fraudulent phoenix activity: proposal paper of 2009, which my colleague the member for Dunkley referred to quite extensively in his contribution to this debate. It highlighted three of the most significant reviews that have been undertaken as a result of this fraudulent activity. Firstly, the Australian Securities Commission report of 1996 estimated that annual losses to the Australian economy as a result of fraudulent phoenixing were between $670 million and $1.3 billion per annum. More recent estimates now place this figure at some $2.4 billion per annum. In the Sydney Morning Herald on 3 January this year an article made reference to a comment by the Australian Taxation Office, which estimates that there are some 6,000 phoenix companies in Australia and some 7,500 to 9,000 directors who will have personal liability under this legislation. Secondly, the Cole royal commission in 2003 reviewed and highlighted fraudulent phoenix activity in the building and construction industry. The review heard evidence from a range of organisations about reports of significant phoenix activity in the industry, including tax avoidance or avoidance and underpayment of workers' compensation premiums. Thirdly, in 2004 the Parliamentary Joint Committee on Corporations and Financial Services received a number of submissions on instances of fraudulent phoenix activity in the Australian economy, noting that 'almost all' regarded the problem as a serious one requiring the attention of the legislature. They were supportive of strengthening measures against phoenix companies.

Since then the government has made a variety of attempts to introduce legislation to target phoenix activity. I will summarise them briefly. Last year the government included 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. Subsequent to that, the House of Representatives Standing Committee on Economics recommended that the government investigate whether it could possibly tighten the provisions in the bills to better target phoenix activity. Since then, in another example of this government's inability to actually complete anything significant, the government has withdrawn the provisions from the bill and is yet to provide any indication as to how it will tighten these provisions in line with the committee's recommendations. The bill we are debating today has nothing to do with those recommendations. It is designed to enhance the ability of ASIC to combat phoenix activity, yet ASIC has enormous powers already. The question is whether those powers are being adequately applied in circumstances of phoenix activity.

I will outline for the House the measures contained in this bill. It 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 responding to a compliance notice or has not lodged other Corporations Act documents in the preceding 18 months; if ASIC has no reason to believe a company is carrying on a business and no objection to liquidation is received from directors; if a company's review fee has not been paid within 12 months; and if a company has been reregistered in the preceding 16 months and ASIC has reason to believe it is in the public interest to place the company into liquidation. Significantly, from my reading of the bill, this applies to all companies. There is no definition of a phoenix company or what phoenix activity is, which would limit these powers of ASIC to particular instances that arise under phoenixing activity. The bill also alters the publication requirements of corporate insolvency notices to allow for publication on a single ASIC-administered website. Finally, the bill establishes a duty for receivers, administrators and liquidators to notify the secretary of FaHCSIA upon their appointment to a company that is a Paid Parental Leave employer. As my colleague the member for Dunkley quite rightly pointed out, if the government were prepared to actually take some input from the opposition and have payments made direct to employees rather than via companies, this requirement would not be an issue.

The coalition opposes this bill in its current form, as there has been no attempt made to define phoenix activities in the bill and there are a number of other glaring omissions. We believe it is paramount for any fraudulent activity to be clearly defined to protect legitimate companies and to ensure that they do not inadvertently get caught up in what is quite draconian legislation which will apply to all companies. The coalition is also concerned about the significant increase in ASIC's powers, given that the bill fails to outline why ASIC requires these additional powers when it seems incapable of using the powers it already has. As Australia's corporate watchdog, ASIC has a vital role to play in the application and enforcement of existing corporate legislation. Yet, as evidenced by the Dun and Bradstreet research, 29 per cent of companies that became insolvent in 2009-10 had one or more directors previously involved in a wound-up entity compared to just 10 per cent during the 2004-05 financial year. This raises more questions than it answers. One of the major contributing factors to phoenix activity is that regulators do not fully utilise the existing powers available to them and, therefore, we believe that ASIC should utilise its existing powers more effectively to combat the activities of these companies, ahead of legislation that implements any additional powers.

According to Senator Nick Sherry's 2009 discussion paper, a number of existing legislative and administrative mechanisms can be and are used to address aspects of fraudulent phoenix activity, including measures in taxation law as well as measures in the Australian corporate law regime, including those sanctioned in the Corporations Act 2001 and programs that are otherwise administered by ASIC. However, as the report states, it is clear that these existing mechanisms do not provide sufficient disincentive to prevent fraudulent phoenix activity. This results in a lack of prosecutions, under-resourced regulators, insufficient follow-up on complaints and inadequate penalties to act as a deterrent and, as a consequence, a loss of trust in the system. Once again, we see a government that is taking an ad hoc and bit-by-bit approach to the targeting of fraudulent phoenix activity by introducing various pieces of related legislation rather than creating legislation that seeks to deal with the problem as a whole. It is this ad hoc approach that creates the loopholes for companies to continue undertaking this activity.

In our view, the current bill should be withdrawn until there is sufficient and meaningful consultation with stakeholders to address their legitimate concerns and a comprehensive and coordinated legislative approach is determined for this very important public policy matter. All on both sides of the House would agree that this is a real stain on our society and on our business community. As a starting point, the government should consider the proposals paper on combating phoenix activity which I mentioned earlier. Of the 11 proposals made in that paper, none are reflected in the proposed new ASIC powers. The 11 proposals may in fact be a good place for the government to start when it goes back to the drawing board on this policy.

The coalition has a number of other concerns about the government's approach to phoenix activity including: 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. Failing the government seeing sense and going back to the drawing board, this bill needs a thorough examination by the Senate economics committee. The coalition would also like to see an economic references committee look beyond the government's piecemeal legislative efforts and inquire into the full range of options available to reforming the laws surrounding phoenix activity and also make recommendations to parliament for a comprehensive and coherent legislative framework.

In conclusion, phoenix activity has the potential to damage the reputation of Australia's strong business community and reduce confidence in our world-class corporate regulatory framework. Phoenix activity can cause significant harm to workers and small business people who are denied their legitimate entitlements. The coalition is strongly opposed to fraudulent phoenix activity and will support positive measures to reduce and eradicate its practice. Reducing phoenix activity will require carefully considered policy, not the ad-hoc approach outlined in this bill. The solution to phoenixing will require further detailed consideration. We will oppose this bill until further developments are fully considered. (Time expired)