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Thursday, 22 June 2017
Page: 7468


Ms OWENS (Parramatta) (12:23): I am pleased to stand and speak to the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017, a bill that has really important intent behind it, and one that we on this side of the House support. Before I talk about the bill itself and the changes it makes to Australia's corporate insolvency system that are designed to assist businesses trade through difficult patches, I want to remind the House of the kinds of circumstances that businesses find themselves in from time to time, quite often not necessarily even because of their own actions.

This legislation will not apply to every business in these circumstances, but it is worth thinking about the circumstances in our own communities, where we see businesses that, on a normal day, are viable. But changing circumstances can require them to rethink or sometimes just hold out for a short period of time. We see small businesses like the coffee shop down at Pendle Hill, where Baulderstone Hornibrook is building the big, new over-the-station ramp. They have not had any passing customers for the last six months, and they will have another six months without passing customers. That is a small business that probably will not be captured in this, but it is an example of a business that is perfectly viable on a normal day, but circumstances change. You may see a really great little coffee shop or restaurant where the building they are renting is sold. Suddenly the building is demolished and they have to move. Again, a perfectly viable business is in a circumstance that they have to find their way through.

There are businesses that have been affected by fire. Many go to the wall because of the effects of fire, including the loss of their customer relationship during the time that they are rebuilding. Again, they are perfectly viable businesses. We see it in natural disasters and we saw it in the global financial crisis, not just because of the slowing of the market but also because of the rapid increase of the Australian dollar—something that was not going to last forever, so we thought, and it did not, but something that sent many viable, perfectly good businesses to the wall. The circumstance was largely out of their control and they were unable to respond to it with our current laws. We see what happens in the motor vehicle industry when a large buyer closes its doors and thousands of small businesses have to find ways to expand into new markets to deal with the fragmented supply chains. Again, they are perfectly good businesses with viable products that need to rethink the way they operate in a rapidly changing market. We see across the whole spectrum of our community at the moment disruption, rapid change and new opportunities which businesses need to be able to pursue. The pursuit of a new opportunity brings with it risks associated with the need to rethink and restructure, but we need our businesses to be able to do that.

At this time, perhaps more than any other time in living memory, we need to be able to support business to rethink, restructure, engage with new markets and see themselves through some of the tougher times on certain conditions. That is what this bill does. As the shadow Treasurer and all of the speakers on this side have said, the intention of this bill is really good and we will support it in this House. The bill makes changes to allow more opportunities for businesses to be turned around. It does it in two ways. Firstly by creating a safe harbour from personal liability for trading while insolvent. This is for company directors who are honestly and diligently taking a course of action that is reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or a liquidator. Secondly, the ipso facto clauses may allow the termination or variation of contracts based on a company's financial position or the commencement of certain insolvency proceedings will become unenforceable during and after certain formal insolvency procedures. So there are those two things—firstly, the safe harbour for directors who are behaving exactly the way we would want them to behave, diligently and responsibly, to trade their companies out, and, secondly, the ipso facto clauses which prevent what you could describe in many ways as a run on a bank, where someone believes a company is in financial trouble and, even though it is continuing to pay its debts and staff, under the old laws it has the right to withdraw from contracts. This protects companies that are doing the right thing from that response by some of its creditors.

When you are talking about something this complex, it is very much an issue of finding the balance. We obviously want fewer insolvencies and we want companies to be able to trade through, but we want to do that in a way which does not increase the severity of some insolvencies, by having companies trading for longer than they should, and does not damage shareholders. We want as much benefit as we can have but the least harm. It is a standard ethics dilemma: the most good for the most and the least harm for the fewest. On this side of the House we believe we need to continue to look at the possible consequences of the bill: the unintended consequences for the community, shareholders and other businesses that have contracts with the companies that are affected by this law.

We are looking forward to the Senate inquiry's report. The Senate is already inquiring into this and the committee will report before the House resumes after the winter recess. When we come back the Senate inquiry will have reported. In contrast to the member for Fairfax's statements, the Senate inquiry will not cause a delay of this bill. Its findings will be back in plenty of time for the Senate to consider this bill. We believe that the inquiry is incredibly important because it allows many stakeholders to contribute to this place's understanding of the effects of this bill across the range of people that it affects.

While the industry as a whole believes that the intent of this bill is very good, not everybody believes that it is in its best form at the moment. The Shareholders Association, for example, has concerns for its members, who are shareholders in some of the companies that will be affected by this bill. The Productivity Commission has made a number of recommendations, none of which are in this bill. So there is another course of action recommended by the Productivity Commission, and we need to consider whether we are looking at an exemption or a defence model. So there are things for us to work through, and it will be great to watch the Senate inquiry take place. It will be good to see the submissions so that we can fully understand exactly how this works.

We have moved a second reading amendment because we on this side of the House have a particular concern with phoenixing activity. It is worth noting how long there has been concern about this. There are some areas in the Australian business sector—construction is a huge one—where the level of phoenixing is extraordinary. We all know that, when a company phoenixes, it is quite often small businesses that are found in a very fragile state, sometimes with major contracts—sometimes with their biggest contracts—effectively disappearing beneath them and tied up with legal challenges et cetera for quite some time. You see a lot of businesses go to the wall because of phoenixing.

It is a particularly pernicious activity, where you see one business transfer its assets to another company and then deliberately send the first one broke so that they can basically start clean—same people, new business and assets from before. Let's face it, it is theft. It is a rather sophisticated form of theft. It is rife throughout our community and everybody on both sides of the House knows that it is. We on this side came up with a policy some time ago of a director identification number, which would ensure that each director is recognised as an individual and we do not get what we get now with, I guess you could call them, 'fake directors' and even some people being registered more than once.

There was an article back in May 2017 in The Startup Magazine which talked through the recent history of this and talked about the Productivity Commission's report in December 2015, which recommended director identity numbers for directors—way back then, in December 2015. It took the government 16 months to respond to that. The response has only just come down. The government is now looking at it and there is a task force, but this is something that both sides of this House have known about for a long time. It is something that the tax office is looking at. It is something that government bodies that look at money laundering are looking at. It is rife through our communities and it is time that the government took action on it.

We have recommendations from just about everybody. The Institute of Company Directors and the ACTU both agree. The Productivity Commission agrees. It seems everybody agrees that we need director identification numbers in order to shut down this particular, pernicious form of theft. I would strongly urge the government to act on it. If the government are genuinely concerned about viable businesses that go to the wall because of external activities and if they are genuinely concerned that legitimate and viable businesses are able to trade, they need to deal with phoenixing.

Again, in the construction sector, we hear the government talk a lot about lawlessness from one sector but we do not hear them talk about lawlessness in this way—and it is rife in that sector. Every single one of us would know a subcontractor or a small business that is struggling beyond its capacity and that goes to the wall because of phoenixing activity in that sector. I strongly urge the government to act on it.

This bill's intent is really quite good, and the government has included in it some of the protections that we on this side would be concerned about. It ensures that the company continues to comply with its obligation to pay its employees, including their superannuation, for example. It is incredibly important for we on this side that that is the case. Where the ipso facto clause applies, it does not protect a company that is not paying its contractors. The contractors can still withdraw from a contract if the contract terms are not being met, but it removes the ability for a business to break its contract simply because the company has moved into this particular form of safe harbour. So it has some protections in it.

Again, we are concerned through the Senate inquiry to explore that further and ensure that those protections are in place. With some sectors of the business community, particularly those engaged in phoenixing activity, there can be remarkable mechanisms and attempts to find their way through the law as they are, and we need to ensure that the safeguards are absolutely there so that we do not have a greater harm to some by companies continuing to trade when they really are insolvent. We all know that directors of companies and owners of companies, particularly entrepreneurs, have such incredible faith in their ideas—if they did not, they would not be doing it—but sometimes that faith is misplaced, and we need to ensure that the safeguards are there so that we get the most good and the least harm.

I commend the government for taking action on this. I am sorry to hear members opposite so critical of an opposition that seeks to look at some of these issues in greater detail. That is actually the role of an opposition, by the way. I think the remarks on this side have really been quite measured. We support the bill's intent. We just want to make sure that, in this really complex area, where you are dealing with human beings with different motivations that interact with other businesses, with employees, with shareholders and with superannuation funds, we actually get it right and we do not create another problem for one that we are solving. It was a pleasure to speak on this bill. As I said, it has great intent, and I look forward to the outcome of the Senate inquiry.