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Wednesday, 29 February 2012
Page: 2354

Mr HOCKEY (North Sydney) (17:42): I rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. The bill gives the Australian Securities and Investments Commission significant new and broad discretionary powers to place a company into liquidation. These powers can be used where a company is six months late responding to a compliance notice, the company has not lodged other Corporations Act documents in the preceding 18 months, ASIC has no reason to believe the company is carrying on a business and no objection to liquidation is received from directors. The powers can also be used where a company's review fee has not been paid within 12 months, or 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.

The bill also alters the publication requirements of corporate insolvency notices to allow for publication on a single ASIC-administered website. We see this as a good initiative. Finally, the bill establishes a duty for receivers, administrators and liquidators to notify the secretary of FaHCSIA—yet another extraordinary acronym for a department under this government—on their appointment to a company that is a paid parental leave employer.

This bill was introduced to the House of Representatives on 15 February 2012. The next day the bill, appropriately, was referred to the House of Representatives Standing Committee on Economics as the coalition had raised significant questions relating to the legislation, such as how the bill addresses phoenix activity and how current legislation in the area is being utilised. This inquiry would have provided answers for the coalition and certainty for Australian business and it would have been a platform for interested parties to get a greater understanding of how ASIC is dealing with this issue. On 27 February 2012, the chair of the House of Representatives Standing Committee on Economics, the member for Parramatta, said:

The committee has decided not to inquire into the bill and recommends that the House or the Federation Chamber consider the bill forthwith.

So the government is intent on and determined to avoid committee scrutiny of the legislation. It is not as if this is the carbon tax or the GST, or anything else. This is a bill that goes to the regulatory burden associated with doing business in Australia. If a parliamentary committee under the member for Parramatta has not got the guts to do that sort of analysis then it says something about why this government is in so much trouble with the Australian people and the level of regulation is so burdensome for business.

Of course, this is not the first time and it will not be the last time the government have been embarrassed by this piece of legislation. Treasury issued an exposure draft of this legislation in the week prior to Christmas with submissions open over the Christmas and New Year holiday period, and closing five weeks later on 24 January 2012. Having just had a brief read of George Megalogenis's book, I understand the chaotic decision making of the Rudd government and the determination to make big decisions on Christmas Eve but surely, when it comes to the powers of ASIC and matters relating to phoenix company activity, having the only consultation period over the five weeks prior 24 January 2012 is incompetent and represents another affront to the common-sense approach that we have always previously had on these sorts of bills.

It is no surprise that when the coalition members referred the bill, the Labor controlled House economics committee used its majority numbers from the Labor Party to block an inquiry into the bill. Whenever the coalition wants to scrutinise the decisions of government, the government stands in the way. This is a government that is not prepared to expose its legislation to full and frank scrutiny.

The coalition shares the concern of peak industry groups about phoenix activity. Fraudulent phoenix activity occurs where company assets are transferred from a company with significant debts to a company with no debts, where there is a connection between both companies and for the purposes of depriving unsecured creditors from equal access to its assets. Phoenix activity is obviously a clear and present problem in the Australian economy. Phoenix activity is estimated to cost the economy $2.4 billion a year and is harmful to suppliers, contractors, customers and employees. It damages prosperity and economic confidence and has a particularly harmful impact on small businesses that are suppliers to those companies.

Dun and Bradstreet research reveals that 29 per cent of companies that became insolvent in 2009-10 had one or more directors previously involved with a wound-up entity compared to just 10 per cent during the 2004-05 financial year. The coalition shares the view of the government that phoenix activity is an immoral act. The government should do all it can to stamp out this practice, but it must do so without punishing the wider business community with more regulation and more red tape. Reducing phoenix activity requires specific and targeted policy, not the knee-jerk and ad hoc approach to reform favoured by the Gillard government.

The coalition are deeply sceptical of extra regulation being placed on business. We are concerned that the tranche of legislation relating to curbing phoenix activity will not achieve its stated aims. Instead of curbing illegal phoenix activity, it could have, and may well have, the unintended consequence, or rather the intended consequence, of curbing business activity that is not fraudulent. You have to wonder what Labor are thinking.

The coalition are entitled to ask serious questions about the bill. It is up to the government to make the case for increased powers and the case for why ASIC is best placed to regulate this behaviour. The government must show the deficiencies in the current Corporations Law and justify the extra powers. The coalition believe the powers which ASIC currently have together with the powers of liquidators under the Corporations Act are sufficient to deal with the problem of phoenix activity. Under the Corporations Act, directors already currently face significant responsibilities and ASIC's enforcement mechanisms are vast, including disqualification of directors for up to five years and even longer with a court order. This means there are options already available for ASIC to penalise directors who engage in fraudulent phoenix activity.

The government have not established whether current protections against phoenix activity are working or not. This, among other reasons, is why the bill deserves scrutiny by the House economics committee. Unfortunately, the second reading speech by the parliamentary secretary does not shed light on the government's motivations behind this fundamental change in the Corporations Law nor the imperative for change. The measures go well outside simply targeting phoenix activity.

Part 1 of schedule 1 relating to the winding up of a company by ASIC applies to all companies, not just one suspected of phoenix activity. If this bill is truly intended to curb phoenix activity then the changes should only be triggered when fraudulent phoenix activity is suspected. The government should be considering other options. As a starting point, the government should consider the proposals paper on combating phoenix activities released in November 2009 by Nick Sherry, then Assistant Treasurer—one of five Assistant Treasurers in the short history of this Labor government. Of the 11 proposals for combating phoenix activities in that proposals paper, none are reflected in these new ASIC powers. While there is universal agreement that phoenix behaviour is unacceptable, there has been no attempt to define phoenix activities in the areas of this legislation.

Mr Peter Strong of COSBOA agrees that the behaviour of phoenix activity is unacceptable but condemns the general government's response to the behaviour. He said:

Let me say that the behaviour of those people is appalling and it makes it hard for everybody else in business. It is not just the fact they are doing it which is wrong—and it is wrong—but they are making it harder for everybody else, giving us a bad reputation and creating the opportunity for bad press. I think we need to spend more time chasing those people rather than chasing everybody and making life difficult for everybody.

This concern is shared by Professor Bob Baxt, Chairman of the Law Committee of the Australian Institute of Company Directors, who says:

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?

The coalition calls on the government to define phoenix activity so as to properly assess the impact of the legislation on Australian business. Australian business can hardly be required to comply with legislation where the central behaviours are not defined.

We view this legislation as bad legislation because it fails to properly address the specific problems faced by Australian business, and the government has got its reaction wrong. Despite a Senate inquiry and assurances from the ATO and ASIC that both were cracking down on phoenix companies, and despite new tax office powers to demand security deposits from suspect businesses to combat fraudulent phoenix activity, the illegal practice is reportedly continuing to flourish.

Treasury, the ATO, ASIC and industry groups have identified a range of factors which contribute to the extent of phoenix activity, including regulators not fully utilising the existing powers available to them, a lack of prosecutions, under-resourced regulators, insufficient follow-up on complaints and inadequate penalties to act as a deterrent. The government has failed to outline a coherent strategy for tackling phoenix activity to protect suppliers, contractors, customers and employees, and it damages prosperity and economic confidence, as evidenced by, for example: (1) the failure to define phoenixing in the bill; (2) the lack of evidence about how additional powers will better enable ASIC to tackling phoenixing; (3) ongoing concern about regulators not utilising current powers to investigate and take action on phoenix activity; (4) previous assertions by the government that other actions and previous expansions of regulator powers and penalties would be effective; and (5) the absence of any recognition of the role and capacity of liquidators in tackling phoenixing.

This bill deserves extra scrutiny. Declining a House economics committee inquiry makes a complete mockery of Gillard's promise to 'let the sun shine in' on parliament. The coalition will oppose this bill in the House and we will oppose it in the Senate, pending a thorough and meticulous investigation by the Senate Economics Legislation Committee. This bill deserves the scrutiny of parliament and of the tried and tested committee system. Labor cannot continue to hide from their bad legislation.

This is yet another example of Labor incompetence. The Gillard government's response is yet another example of its preference for blanket over-regulation that strangles enterprise and prohibits good people from getting on with their job rather than the effective enforcement of existing laws and using existing powers and, where appropriate, seeking additional specific powers to deal with things that cause harm, such as phoenixing.