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Wednesday, 9 May 2012
Page: 2892


Senator FIERRAVANTI-WELLS (New South Wales) (11:10): I rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. This is an area in which I have a particular interest, given the work I did formerly at the Australian Government Solicitor's Office, and for quite a number of years I was involved in insolvency practice. Phoenixing, particularly in relation to the winding up of companies that had failed to pay their tax, was my daily bread and butter. It is interesting to hear Senator Thistlethwaite speak on this issue. More often than not the companies that do engage in phoenixing activities are, as Senator Thistlethwaite justly says, in the construction industry. That is where I saw many of the worst examples of phoenixing. Often I would have discussions with union officials—sad discussions with union officials—who had come to me representing their members because companies had not paid, in particular, their dues to the Australian Taxation Office and therefore in any eventual winding up the workers had a very difficult place in the pecking order. I want to place this on the record because it is my view that this area needs much more attention than this bill gives it.

Can I present some practical examples relating to some of the things that Senator Cormann and, to some extent, Senator Thistlethwaite said. Senator Thistlethwaite focused on some high-profile windings up. I would like also to place on the record that I had my fair share of interesting windings up. In fact, Senator Marshall, I actually wound up the holding company that ran that famous piggery. That was a very interesting exercise. There are certainly some very interesting characters on the list of serial directors who set up companies and then deliberately send them into phoenixing arrangements and trade insolvently, particularly those with whom the Australian Taxation Office has come into close contact. I will not put names on the record.

The point I make is that any package that deals with phoenixing must look at what existing powers are available to the Commonwealth—and they have always been available to the Commonwealth, yet some of those powers have not been used. One of the most common situations I found myself in was where I would be winding up a company which had directors that had previously had companies; those companies went into liquidation, then they set up companies with similar names and they went into liquidation. Often I would be dealing with directors who had had a string of companies that had been wound up, and here they were again before the courts being wound up. Why? Because, regrettably, there had not been a prosecution, there had been underresourced regulators, there had been insufficient follow-up on complaints and there had been inadequate penalties to act as a deterrent. Unfortunately, if these directors are not prosecuted for insolvent trading and the regulator might have the powers to prosecute but does not have the resources to undertake those prosecutions, the inevitable will happen: these companies will go into liquidation; the creditors—often the workers—will not get their entitlements; and another company will start up down the road the next week.

Another issue with phoenixing that I found in my experience was the use by companies and company directors of the voluntary administration provisions, which also enabled them to undertake creative accounting and enter into arrangements which often paid 5c in the dollar and then again, ultimately, the company could be put into liquidation and the directors would start up again.

My concern with this legislation is not that I do not want to combat phoenixing but that the measures to combat phoenixing should be packaged up in a much broader reform than is currently before us. Senator Thistlethwaite mentioned section 489EA and ASIC orders for the winding up of a company. The legislation may well canvass that sort of issue, but what is clear is that work done by the Senate Standing Committee on Economics as well as work previously done by Senator Sherry and other assistant treasurers provides a much better and much more comprehensive starting point for the direction of this legislation. This is not a definition of what phoenixing activity is. This is a broad definition of the talks about the winding up of a company. It does not go into the specifics of the sorts of phoenixing activity that we see daily.

Senator Cormann referred to the work of the House of Representatives Standing Committee on Economics, and that committee presented a unanimous and bipartisan recommendation that the government not proceed with provisions. It specifically commented:

... the committee notes 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. The committee recommends that the Government should investigate whether it is possible to tighten the provisions of the bill to better target phoenix activities.

As I understand, the government sub­sequently withdrew the provisions from the bill which the Economics Committee was then considering and has yet to provide an indication as to how they will tighten the provisions to better target phoenixing activities as recommended by the committee. A number of senators were involved in a Senate inquiry which, while it came from the other aspect of considering activities of liquidators, nevertheless touched on phoenixing. Senator Williams in particular went into more detail in relation to some companies he had had experience with. We have yet to see a government response to that committee report, which also touches on these matters and lends credence to my appeal to the government that this is a far wider issue than what this legislation currently canvasses, particularly in fairness to all—not just the corporate sector—small businesses and workers who often find themselves at the lower end and ultimately are the ones who suffer the most as a consequence of companies going into liquidation. In the construction industry it is the subcontractors, the workers and the businesses providing materials who ultimately will not be paid.

The necessity for a clear definition is fundamental to any legislation. It is fundamental that that definition include the fraudulent activity which is the cornerstone of phoenixing activities. The definition should be targeted at the specific activities which the government is seeking to eliminate. A clear definition would protect those legitimate companies and ensure they do not inadvertently get caught up in what is quite draconian legislation. My criticism is that there needs to be greater definition of what phoenixing is about. While Senator Thistlethwaite touched on this, there is a range of areas which, in my experience, could be looked at. When one examines whether a company has been engaged in phoenixing activities, there is a range of Commonwealth areas with which the company could have had involvement—the tax office or a range of other aspects of government—which would have given certain indicators. For example, directors may have previously been directors of companies which had gone into liquidation. One accepts that some companies do go into liquidation as serial offenders. I dealt with one colourful character frequently in the courts. I must have wound up 10 or 12 of his companies. He repeatedly turned up in the courts, in my case because we were winding him up for failure to pay tax.

Yes, there is a rightful role in relation to ASIC improperly overseeing and enforcing legislation but my point is that I would like to see ASIC utilise more fully the existing powers available to it. While the government is now looking to add additional powers, a far better reform package would look at the existing powers ASIC and other organisations to see how they can be better utilised. The concern I have, as Senator Cormann expressed, is that the government seems to be taking an ad hoc and piecemeal approach to the targeting of fraudulent phoenixing activities by introducing different pieces of related legislation in an unco­ordinated manner rather than withdrawing the current bill, looking at this matter in a much more global way, engaging in meaningful consultation with stakeholders to address their legitimate concerns and determining a comprehensive and co­ordinated legislative approach to this important public policy matter.

As a starting point—and I mentioned Senator Sherry before—the government should consider the proposals paper on combating phoenixing activities released in November 2009 by Senator Sherry, who was then the Assistant Treasurer, one of five assistant treasurers in the short history of the Labor government. Of the 11 proposals for combating phoenixing activities in that proposals paper, none are reflected in these new ASIC powers. The 11 proposals may in fact be a good place for the government and the new Assistant Treasurer to start when they go back to the drawing board, as they properly should on this important area of policy.

The coalition has a number of other concerns about the government's approach to phoenixing activities 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 taxing phoenix activities. I mention the report the Senate committee had undertaken in relation to liquidators' activities because we have yet to see the government's response. I think that is an important component if we are going to consider phoenixing activities. I echo Senator Cormann's comments on Senator Mark Bishop, the chair of the economics committee, in the report tabled by Senator Polley a few moments ago. Can I also place on record that tabling a report on an important piece of legislation and then having the legislation follow shortly thereafter is really indicative of the shambolic way that this government runs its Senate procedures. But even Senator Bishop makes comments in relation to the definition of winding up by ASIC and, indeed, even Senator Bishop makes references to how the definition needs to be improved.

I turn now to the coalition senators' dissenting report, which picks up the Treasury proposals paper and the document that I referred to in relation to Senator Sherry. I would like to quote from the Treasury proposals paper issued in November 2009, which describes the systematic way that such phoenix activity is conducted:

Fraudulent phoenix activity involves the evasion of tax and other liabilities such as employee entitlements through the deliberate, systematic and sometimes cyclic liquidation of related corporate trading entities.

Coalition senators recognise that phoenix activity causes significant harm, most especially to workers and small businesses who are denied their legitimate entitlements. They state correctly:

If left unchecked it can erode the reputation of Australia’s strong business community and reduce confidence in our world class corporate regulatory framework.

Despite efforts of this government, it still does not get it right.

The coalition senators' dissenting report refers to the unanimous and bipartisan recommendation of the House of Representatives Standing Committee on Economics and then goes on to state the obvious—that there is no definition of fraudulent phoenix activity. The report picks up the point made by the Australian Institute of Company Directors:

We are firmly of the view that if new legislation is being introduced to target a specific problem, then the legislation must clearly define the issue sought to be addressed and specifically regulate that problem.

It is very clear that the government has not made any meaningful attempt to define what constitutes fraudulent phoenix activity or to delve into the specifics of what that activity entails. You cannot make a meaningful attempt to reduce phoenix activity if you do not specifically and properly define what that activity is and what it entails, and be a lot more specific about it. As I said, whilst the bill does make an attempt to significantly increase ASIC's powers, it fails to address the existing powers and how those powers have been utilised. In any reform in this area, one does have to examine the deficiencies in the current regulatory framework to see why activity has gone unchecked.

Phoenixing activity has been a factor of corporate life. I used to practice in this area in the early 1990s and mid-1990s. We still have these issues. I take Senator Conroy's point that governments of both persuasions need to look at this area. (Time expired)