Paul Fletcher (Bradfield, Liberal Party) Share this | Hansard source

I am merely raising the hypothetical possibility, Madame Deputy Speaker, I hasten to add. What that company might choose to do is to hide behind the corporate veil, move all of its assets to a new company, such as Paul Fletcher (Brave New Horizons) Pty Ltd, and carry on business under that new name. Creditors who have been dealing with the company under the old name will find that that company has no assets with which to pay the debts that it owes to them. That is, on any view, fraudulent and deceptive behaviour to be deplored.

It is deplorable in all circumstances, but one of the circumstances in which it is clearly most deplorable is when the creditors who are defrauded are employees of the company, who find themselves unable to recover entitlements that are owing to them, such as long service leave entitlements. Clearly, it must be absolutely galling for anybody in this circumstance to find that they have been defrauded while the directors of their company are now carrying on business—often under the same brand name—using a different company as a vehicle, and are therefore able to take advantage of the different legal personality of the new company and fail to pay the debts owed by the old company. Let us be clear: it is not contentious among members of this House that that is deplorable behaviour. But the question before the House this evening is whether the measures that are put forward in this bill will be effective in addressing that undoubted problem.

That brings me to the second point that I want to make to the House this evening, which is that there is, on analysis, no evident linkage between the measures in the bill and the conduct of phoenixing that we are all united in deploring. What are the measures contained in this bill? The key measure is that ASIC, the corporate regulator, is given significant new discretionary powers to wind up a company. There are several specific triggers which allow that power to be exercised. Those include: if a company is six months late responding to a compliance notice and has not lodged other Corporations Act documents in the preceding 18 months; if a company's review fee has not been paid within 12 months; or if a company has been re-registered in the preceding six months and ASIC has reason to believe it is in the public interest to place the company into liquidation. There are one or two other heads as well, but these are the major ones that I want to deal with. The critical point in analysing the provisions of this bill is this: there is no linkage on the face of the words of the bill between the powers it grants to ASIC and phoenixing conduct. Nowhere in the text of this proposed statute is there a requirement that ASIC must form a view that a company has engaged in phoenixing behaviour. Nowhere is there a requirement that ASIC must have a reasonable suspicion that a company has engaged in phoenixing behaviour. Nowhere in this bill, which purports to deal with the evils of phoenixing, is there even a definition of phoenixing. This is an approach to drafting which is, on any view, novel. When you consider that the word phoenixing appears in the title but virtually nowhere else in the language of the bill, it makes any reasonable inquirer highly suspicious as to what is going on.

The language of this bill, the structure of this bill and the drafting of this bill give every indication of a desire on the part of this government to be seen to be offering a solution to a serious problem without actually having come up with a practicable, effective, workable solution to a serious problem. This is not surprising. This government has tried on a number of occasions to get to grips with the problem of phoenixing but it has been unsuccessful.

Last year, for example, the government included a series of measures targeting some aspects of phoenix activity in the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 and the Pay As You Go Withholding Non-compliance Tax Bill 2011. After examining the bills, the House of Representatives Standing Committee on Economics made a unanimous and bipartisan recommendation that the government should not proceed with enacting those provisions. It said:

However, the committee notes that concerns from the business community and its representatives that the Bills potentially apply to the broad range of directors whether engaged in phoenix activity or not. The committee recommends that the Government should investigate whether it is possible to tighten the provisions of the Bills to better target phoenix activity.

The government subsequently withdrew those provisions from those particular bills and has yet to provide any indication as to how it will proceed with them. I would put it to the House that the analysis conducted by the House of Representatives economics committee, and the finding that those particular measures did not effectively target phoenix activity, are findings which would apply with equal force to the measures contained in the bill presently before the House.

What we have in the bill before us is the granting of an additional power to ASIC—that is, to wind up a company on ASIC's own motion without having to persuade a court of the desirability of doing so. There is no linkage to phoenixing and there is no requirement to form a state of mind or a suspicion that phoenixing is occurring—there is not even a definition of phoenixing. It is a heroic claim to describe this bill as dealing with phoenixing at all.

Let me turn to the third point which I wish to make. As I have argued, the provisions of this bill grant ASIC a very wide set of additional powers and discretions which can be exercised without seeking court approval. Let us consider, for example, the power to wind up a company if its review fee has not been paid within 12 months. ASIC might choose to use that power for a whole range of reasons which have nothing to do with phoenixing, including debt collection. I regularly receive complaints from constituents involved in business activities that ASIC's annual review fees are very steep. They seem quite disproportionate to the value of the services actually received by the businesses compelled to pay these fees. It is very easy to imagine how a statutory agency like ASIC might fall prey to the temptation of using this wide new power to engage in debt collection activity to follow up fees which have not been paid. There is nothing in the grant of this power which confines, restricts or links it to phoenixing activity, notwithstanding the claim that this bill is about phoenixing activity.

Statutory agencies like ASIC play an important role in the supervision of corporate activity. But that does not mean that the parliament, representing the people of Australia, ought to freely agree to hand ASIC more powers and discretions without careful scrutiny and without carefully weighing up the benefit to be obtained against the possible reduction of the rights and liberties of the companies and their employees, management and directors with which ASIC is dealing. If you are going to give ASIC additional powers and discretions, you need to make the case for how doing so is going to better allow ASIC to deal with the problem of phoenixing and produce better outcomes and a reduction of phoenixing activity. There is no persuasive case made in the explanatory memorandum. It is very hard to see how there could be such a case made when you have a set of provisions which are drafted with great generality and make no reference to phoenixing whatsoever.

I conclude as I began: there is no question that phoenixing is highly undesirable conduct. The coalition stands ready to support effective, practical, workable measures. The measures in this bill are not effective, practicable or workable; they simply give extra discretions to the regulator and the test as to why that should be done has not been met. (Time expired)

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