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Wednesday, 24 October 2018
Page: 10978


Mr ZAPPIA (Makin) (16:38): I speak in support of the amendment moved by the member for Gorton with respect to the Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018. This is a matter that I have spoken about previously in this place—in particular, when I was making comments about phoenixing and what happens when businesses, often deliberately, go bankrupt in order not to meet their financial obligations to others, and then the operators of those businesses move on to a new business—quite often in the same line of business but simply under a new trading name—and establish, once again, the same cycle of deceiving others and, effectively, taking their money. This legislation implements greater protections for people who lose their entitlements when such a person becomes bankrupt. Therefore, if there are greater protections, it is something that we on this side of the House will support.

In particular, the legislation targets those who deliberately structure their businesses and financial affairs so that they avoid their obligations to their hardworking employees whilst, at the same time, transferring assets out of the business before it goes into liquidation. I stress the word 'before' because, quite often, the people who operate these shonky businesses know exactly what is likely to happen in the months ahead and then quite clearly and deliberately restructure and resell their assets prior to the business going into liquidation. Even worse, they quite often sell them at discounted rates either to a friend or family member or to an entity that they themselves have an interest in. They effectively keep the assets and leave the company bone-dry in terms of its responsibility to other creditors.

This legislation also makes it easier to prove a criminal offence when this occurs, and it increases the penalties for those offences. The legislation also introduces a new civil penalty for avoiding paying employee entitlements and gives the Fair Work Ombudsman, the Australian Tax Office and the Department of Jobs and Small Business powers to pursue the funds owing to those employees. ASIC's powers are also extended. The legislation also gives ASIC the power to disqualify directors and other officeholders where they have a track record of corporate contraventions. I think that that is a good move. It's about time we did that. Someone who has a track record of being what I would refer to as a shonky operator shouldn't be entitled to re-register and have the opportunity to do it again. As I say, all of those measures are welcomed by this side of the House. However, I suspect that the changes are more so motivated by the government's attempt to reduce its obligations—that is, its financial obligations—that arise through the Fair Entitlements Guarantee than through its concern for workers. But whatever the reason, the legislation is welcome.

I point out that in terms of where we are with the Fair Entitlements Guarantee payments, between 2005 and 2009 there was about $70.7 million paid out. That figure rose to $253 million between 2014 and 2018. Clearly, the figure is on the rise. It's not on the rise because workers are getting paid more. As we know, wages have effectively stagnated. It's on the rise because perhaps more businesses are going bankrupt or more businesses are deliberately going bankrupt. That is of real concern because, as we all know, working people in this country are struggling enough as it is with the cost of living. To then suddenly find that your employer has gone bankrupt and you will not be entitled to your wages, let alone to your long-service leave and other entitlements that you might have otherwise expected, is particularly galling. It is certainly galling for employees who have been there sometimes for years, put their heart and soul into their work and supported the employer.

I have no problem with supporting those workers. When the Fair Entitlement Guarantee was brought in, it was a good move because at least it provided some opportunity to get people the entitlements that they had earned. I understand that last year there were some 7,700 corporate bankruptcies in Australia. The Fair Entitlement Guarantee, over the same period, paid out almost $165 million to some 10,822 claimants. Of those payments under the Fair Entitlement Guarantee, $39 million was recovered from liquidated companies. The rest had to come from the fund—that is, a fund that is underwritten by the Australian government and the Australian people.

However, there is another aspect to this that I wish to touch on when we talk about liquidated companies, because it's not just the employees of the business who may suffer when their employees go bankrupt. Quite often, it is other businesses who are also owed considerable amounts of money—other businesses, subcontractors, the tax office itself, and other government entities might all lose out when a business goes into liquidation. The flow-on consequences when a company goes broke stretch far and wide. Indeed, I suspect that, quite often, when one company falls, it causes the fall of a series of other companies.

I refer to one particular company that I have some familiarity with. The owner of that company contacted me only a few months ago. The Adelaide company was dealing a company interstate which went into receivership. The first question was, 'Did it really need to go into receivership?'—because there are doubts as to whether it should have. But when it did, the Adelaide company was owed $1.7 million. It's a substantial amount of money. For that company, the $1.7 million debt could have brought about its own downfall—and nearly did. And that would have meant that its operations—which extend across Australia; a company that employs about 50 people—would have also gone into bankruptcy. Fortunately, it was able to prevent itself from going into bankruptcy. The company is still trading and, I understand, is still able to continue to operate in South Australia with the full workforce that it had before it was left with the $1.7 million of debt.

Some matters arise from the experience of this company that are worth bringing to the attention of this House—the company that owed the $1.7 million was then put into liquidation. Two matters arose from that. There was an attempt by the Adelaide company to retrieve some of its outstanding money, and, to do that, the company had to engage lawyers. The cost of the legal expenses that the Adelaide company incurred was enormous. The first matter was that there seemed to be an unfair situation where this company, in order to try and retrieve its outstanding money, had to engage lawyers, which cost a huge sum of money. But even worse was that, when the company went into liquidation, the liquidator was able to secure funds for the liquidation and for the liquidators' entity but, effectively, left nothing for the creditors.

We need to look at how liquidation in this country actually occurs, because I suspect two things are happening. The first is that liquidators are charging unreasonable amounts for the work they do. And by doing that they are prepared to keep money for themselves whilst others who are owed money lose out. But, secondly, in dealing with liquidation, my understanding is that often assets are liquidated at below market value, in what could be referred to as a fire sale, which sometimes is unnecessary, and perhaps a better rate of return could be made for those assets. That, in turn, would leave more money for the liquidator to pay the outstanding creditors, who are quite often people who cannot afford lawyers and who have no other way of getting their money back. Whilst I appreciate that this legislation goes a long way to supporting workers in this country who are entitled to their wages and so on when a company goes into liquidation, I believe we should also look at the effect of liquidation on other companies and the impact it has on them—because ultimately, they also lose out, and that means workers also lose out because of it.

To wrap up my comments on this, looking at the issues of additional penalties, new penalties, and making it easier to penalise those people who deliberately breach the law and deliberately engage in activities which ultimately result in workers losing their entitlements is something that is long overdue. I would like to think that we don't just pass legislation in this place but also adequately resource the ATO, ASIC and others to do their jobs, to ensure that this doesn't happen as much as it has been to date.

Debate adjourned.