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Wednesday, 5 February 2020
Page: 146

Senator McALLISTER (New South Wales) (09:39): Labor has long urged the government to act on illegal phoenixing, and we congratulate them for finally getting to work, through this bill. We support the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 and we support its objectives. However, we acknowledge some of the concerns raised by stakeholders in relation to this bill , and I will go to that later in my remarks. We also acknowledge that the public is very interested in knowing—has a right to know—whether the provisions in this bill will have their intended effect, because phoenixing hurts people. Illegal phoenixing hurts people, and it is critical that government finally put their shoulder to the wheel and apply just a little bit of effort to dealing with this very serious problem. It's important that this legislation works, and we will therefore be proposing amendments to the bill that will require a statutory review to be conducted in five years time. The review will provide better evidence that any future reforms to phoenixing law work and will ensure that the bill is working as intended.

Before moving onto the substance of the bill, it's worth touching on a related matter. Late last year the government, after months of pressure from Labor, introduced legislation into the House of Representatives to finally implement the director identification number and modernise the business registers. Ironically, this recent legislation, yet to be passed, merely introduced into the other place, mimics the amendments to the legislation introduced by Labor that we will be debating today. We introduced amendments in the other place. Those amendments were voted down by the government. They have dragged their heels at every point, always a step behind us, never confronting this issue and the seriousness of it. Our fight to introduce director identification numbers has had widespread support from the AICD, the ACTU, the ACCI, the small business ombudsman, master builders, and stakeholders across the building and small business sector. Like the government, Labor committed to implementing director identification numbers, back in 2017, but it is only recently that government have gotten around to putting legislation for this critical piece of the puzzle into the parliament. Indeed, as I noted, they've previously refused to vote for these measures. Without Labor's work on this issue, the Liberals, in order to prioritise a partisan political agenda attacking unions, would continue to allow fraudsters to rip off small businesses and their employees.

Every year, illegal phoenixing costs Australian workers and businesses billions of dollars. Illegal phoenixing sees company directors strip businesses of their assets when times get tough, not pay their debts to workers, and then vanish completely, only to start a new business later on. In many cases directors do this numerous times. It affects workers and businesses in many ways. Some developers have built apartments blocks with defects and then disappeared. Owners are left holding the repair bill. Companies that no longer exist leave small businesses with unpaid invoices and workers without wages. A 2018 report by PricewaterhouseCoopers estimated that the annual direct cost of phoenixing to the Australian economy could be between $2.9 billion and $5.1 billion. This includes up to $3.2 billion in unpaid invoices for services provided and up to $300 million in unpaid entitlements for Australian workers. This is not fair. It is not right. It is deeply immoral.

Labor has heard disturbing stories from people like Benjamin, previously employed by M2M Global Technologies. Following the liquidation of that company, in May 2018, Benjamin has been unable to reclaim unpaid superannuation and employee entitlements, including unpaid leave and commissions of approximately $12,000—$12,000 in an ordinary household, unpaid because a company is liquidated. M2M is now a deregistered company with ASIC. However, Benjamin is of the view that a new company, ATGA, has been formed, with the same owners, to avoid the payment of any obligations to employees. He contacted the Fair Work Ombudsman and was advised this matter didn't fall within their scope. He also contacted the ATO regarding unpaid superannuation but was told the matter could not be pursued. He is aware that he's basically exhausted the current options available to him, other than mediation. Without policy and legislative change, there is little further that can be done to assist him.

Another example came from Gareth and Debbie, who previously hired a company, Joyce Kitchens, to refurbish their kitchen. The resultant product was not as agreed, but that company had completed the work, was liquidated, and then restarted a week later—one week later!—under a different name. As a result, this couple have been unable to receive compensation and have been told they must pay, out of their own pocket, for another refurbishment. In the meantime they have a non-functioning kitchen.

These actions, these immoral actions, have real human costs, and this was reflected in the evidence that came before the Senate Economics Committee. The stakeholders for the most part supported the bill. However, many noted that the government's primary focus should be on amending and enforcing existing legislation, not on developing new complex legislative amendments and offences. There was some concern that the proposed measures within the bill are likely to have limited impact as they're highly technical. There was concern that they do not substantially expand ASIC's power to combat phoenixing. It's on this basis that Labor recommends a statutory review be provided for in the legislation because of this uncertainty about whether the provisions will work in the way that the government says that they will work.

Professor Helen Anderson in her submission put forward a view that ASIC already has powers to prosecute illegal phoenix activity. She questioned the need for further legislative amendments. Similarly, the Australian Restructuring Insolvency and Turnaround Association stated that existing legislation contains a number of tools which already address illegal activity; however, the problem is that there is insufficient focus on enforcement actions and, as a consequence, there is no meaningful deterrent for those who engage in this activity. Similarly, the Australian Institute of Company Directors supported the legislation but argued for more proactive policing of legislation.

The Australian Council of Trade Unions expressed concern that this legislation may be a mask for failure to take substantive enforcement action. They noted that:

Whilst the proposed amendments may make ASIC’s task in prosecuting illegal phoenixing behaviour easier, they will be of little value without a significant increase in ASIC’s resources and willingness to deploy them forcefully.

Witness after witness argued that without resources and determination on the part of the regulator to utilise existing laws, additional laws will have little impact.

This bill is ambitiously titled 'combatting illegal phoenixing'. As the committee process made clear, the real task to combat illegal phoenixing may well lie in the implementation. We know that ASIC has limited resources and is unable to pursue all of the reports of corporate misconduct that it presently receives from administrators and liquidators. Without additional funding and staffing, it's difficult to see how ASIC will be able to use these new powers to their full potential.

The government needs to act to ensure ASIC has the ability to support more difficult court cases without draining their resources and they should understand that they have government support, that government really is behind the pursuit of these immoral actors in the economic system. These reforms to combat illegal phoenixing must be adequately resourced, appropriately funded and genuinely politically supported.

In contrast to the government's lacklustre approach, we have always had a strong commitment to antiphoenixing, especially in relation to its impact on the construction industry and its workers. The government has shown little interest in prosecuting corporate misconduct. Here and in other domains, witness them dragging their heels on implementing the findings of the royal commission into banking. Labor will be watching closely to ensure that this bill and other measures to improve corporate integrity are implemented and enforced by the government.