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Wednesday, 5 February 2020
Page: 165

Senator POLLEY (Tasmania) (10:59): I rise to make some comments on the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019. This bill is designed to address fraudulent phoenix activities or the intentional stripping and transfer of assets from one company to another, usually a related entity, making the original entity insolvent. Phoenix activity is estimated to cost our economy around $5 billion annually and has particularly significant impact in the construction industry. Unfortunately, the construction industry rate of insolvency is out of proportion to its share of national output. Over the past decade, the industry has accounted for between eight and 10 per cent of annual GDP and roughly the same proportion of total employment. Over the same period, the construction industry has accounted for between one-fifth and one-quarter of all insolvencies in Australia. It is argued that this is because of illegal use of phoenixing.

However, in Australia one of the difficulties in assessing the incidence, cost and enforcement of phoenix activities is the lack of reliable data. Company creation and liquidation is not evidence of illegal activity. A high rate of insolvency in the construction industry does not automatically mean phoenixing has occurred in every case. People associated with the industry warn that, when the incidence of illegal phoenix activities reaches a critical point, other companies in the industry will face a difficult choice between succumbing to the same illegal behaviour and risking being priced out of business. This is what legislation must aim to address.

There are also some characteristics of the construction industry that make debt recovery particularly difficult. The subcontracting system is a key feature of major building works. The head contractor undertakes to perform the contract and is paid for it by the client. Work is then contracted out through layers of subcontractors. The various layers of subcontractors must complete statutory declarations that they have paid their employees and other debts in order to receive payment from the contractor above them. We've heard that false statutory declarations are common and prevalent within the industry, and ASIC is currently investigating this.

Recovery of unpaid wages and entitlements is also fraught. Employees may not be sure of the company name of their employer, which may change from pay slip to pay slip, and may remain unaware that their employment is now with a new employer who has no liability for the wages or other entitlements accrued previously. The industry employs high numbers of temporary migrant workers whose knowledge of their entitlements may be minimal. Backpackers on 417 visas can lose their employment and their employer sponsorship if they question the payment of their entitlements, and they are then forced to return home. Recovery of redundancy entitlements is especially problematic in the construction industry.

However, as noted by many stakeholders and by Labor senators in the Senate inquiry into this bill, the bill is likely to have limited impact. Therefore, Labor is proposing amending the bill to include a schedule that would implement director identification numbers. This would require company directors to be registered with a unique identification number on a government registry following an identification check. DINs were an election commitment of Labor going into the last election and are supported by many stakeholders as being an effective measure to combat fraudulent phoenix activity.

The ACTU and the Small Business and Family Enterprise Ombudsman are supportive of this, because, currently, it is difficult for regulators to track directors who regularly engage in phoenixing activities. DINs would address that issue. It must be noted that, if the government votes against this amendment, they will be voting against their own policy. I also note that the bill introduces new phoenixing offences to prohibit credit-defeating dispositions of company property, to penalise those who engage in or facilitate such dispositions and to allow liquidators and ASIC to recover such property. These proposed measures are likely to have limited impact. They are highly technical and will not substantially expand ASIC's power to combat phoenixing.

Labor has agreed to proposed amendments to the bill that will require a statutory review to be conducted. This approach is supported by stakeholders, including Professor Anderson. These amendments should be supported by the government because these amendments will improve this legislation. This review would provide better evidence for any future reforms to phoenixing law and would provide additional support for ASIC to enforce processes. We are trying to make this legislation into better legislation. I urge the government to support our amendments.