Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. The bill gives the Australian Securities and Investments Commission significant new and broad discretionary powers to place a company into liquidation. These powers can be used where a company is six months late responding to a compliance notice, the company has not lodged other Corporations Act documents in the preceding 18 months, ASIC has no reason to believe the company is carrying on a business and no objection to liquidation is received from directors. The powers can also be used where a company's review fee has not been paid within 12 months, or where a company has been reregistered in the preceding six months, and ASIC has reason to believe it is in the public interest to place the company into liquidation.

The bill also alters the publication requirements of corporate insolvency notices to allow for publication on a single ASIC-administered website. We see this as a good initiative. Finally, the bill establishes a duty for receivers, administrators and liquidators to notify the secretary of FaHCSIA—yet another extraordinary acronym for a department under this government—on their appointment to a company that is a paid parental leave employer.

This bill was introduced to the House of Representatives on 15 February 2012. The next day the bill, appropriately, was referred to the House of Representatives Standing Committee on Economics as the coalition had raised significant questions relating to the legislation, such as how the bill addresses phoenix activity and how current legislation in the area is being utilised. This inquiry would have provided answers for the coalition and certainty for Australian business and it would have been a platform for interested parties to get a greater understanding of how ASIC is dealing with this issue. On 27 February 2012, the chair of the House of Representatives Standing Committee on Economics, the member for Parramatta, said:

The committee has decided not to inquire into the bill and recommends that the House or the Federation Chamber consider the bill forthwith.

So the government is intent on and determined to avoid committee scrutiny of the legislation. It is not as if this is the carbon tax or the GST, or anything else. This is a bill that goes to the regulatory burden associated with doing business in Australia. If a parliamentary committee under the member for Parramatta has not got the guts to do that sort of analysis then it says something about why this government is in so much trouble with the Australian people and the level of regulation is so burdensome for business.

Of course, this is not the first time and it will not be the last time the government have been embarrassed by this piece of legislation. Treasury issued an exposure draft of this legislation in the week prior to Christmas with submissions open over the Christmas and New Year holiday period, and closing five weeks later on 24 January 2012. Having just had a brief read of George Megalogenis's book, I understand the chaotic decision making of the Rudd government and the determination to make big decisions on Christmas Eve but surely, when it comes to the powers of ASIC and matters relating to phoenix company activity, having the only consultation period over the five weeks prior 24 January 2012 is incompetent and represents another affront to the common-sense approach that we have always previously had on these sorts of bills.

It is no surprise that when the coalition members referred the bill, the Labor controlled House economics committee used its majority numbers from the Labor Party to block an inquiry into the bill. Whenever the coalition wants to scrutinise the decisions of government, the government stands in the way. This is a government that is not prepared to expose its legislation to full and frank scrutiny.

The coalition shares the concern of peak industry groups about phoenix activity. Fraudulent phoenix activity occurs where company assets are transferred from a company with significant debts to a company with no debts, where there is a connection between both companies and for the purposes of depriving unsecured creditors from equal access to its assets. Phoenix activity is obviously a clear and present problem in the Australian economy. Phoenix activity is estimated to cost the economy $2.4 billion a year and is harmful to suppliers, contractors, customers and employees. It damages prosperity and economic confidence and has a particularly harmful impact on small businesses that are suppliers to those companies.

Dun and Bradstreet research reveals that 29 per cent of companies that became insolvent in 2009-10 had one or more directors previously involved with a wound-up entity compared to just 10 per cent during the 2004-05 financial year. The coalition shares the view of the government that phoenix activity is an immoral act. The government should do all it can to stamp out this practice, but it must do so without punishing the wider business community with more regulation and more red tape. Reducing phoenix activity requires specific and targeted policy, not the knee-jerk and ad hoc approach to reform favoured by the Gillard government.

The coalition are deeply sceptical of extra regulation being placed on business. We are concerned that the tranche of legislation relating to curbing phoenix activity will not achieve its stated aims. Instead of curbing illegal phoenix activity, it could have, and may well have, the unintended consequence, or rather the intended consequence, of curbing business activity that is not fraudulent. You have to wonder what Labor are thinking.

The coalition are entitled to ask serious questions about the bill. It is up to the government to make the case for increased powers and the case for why ASIC is best placed to regulate this behaviour. The government must show the deficiencies in the current Corporations Law and justify the extra powers. The coalition believe the powers which ASIC currently have together with the powers of liquidators under the Corporations Act are sufficient to deal with the problem of phoenix activity. Under the Corporations Act, directors already currently face significant responsibilities and ASIC's enforcement mechanisms are vast, including disqualification of directors for up to five years and even longer with a court order. This means there are options already available for ASIC to penalise directors who engage in fraudulent phoenix activity.

The government have not established whether current protections against phoenix activity are working or not. This, among other reasons, is why the bill deserves scrutiny by the House economics committee. Unfortunately, the second reading speech by the parliamentary secretary does not shed light on the government's motivations behind this fundamental change in the Corporations Law nor the imperative for change. The measures go well outside simply targeting phoenix activity.

Part 1 of schedule 1 relating to the winding up of a company by ASIC applies to all companies, not just one suspected of phoenix activity. If this bill is truly intended to curb phoenix activity then the changes should only be triggered when fraudulent phoenix activity is suspected. The government should be considering other options. As a starting point, the government should consider the proposals paper on combating phoenix activities released in November 2009 by Nick Sherry, then Assistant Treasurer—one of five Assistant Treasurers in the short history of this Labor government. Of the 11 proposals for combating phoenix activities in that proposals paper, none are reflected in these new ASIC powers. While there is universal agreement that phoenix behaviour is unacceptable, there has been no attempt to define phoenix activities in the areas of this legislation.

Mr Peter Strong of COSBOA agrees that the behaviour of phoenix activity is unacceptable but condemns the general government's response to the behaviour. He said:

Let me say that the behaviour of those people is appalling and it makes it hard for everybody else in business. It is not just the fact they are doing it which is wrong—and it is wrong—but they are making it harder for everybody else, giving us a bad reputation and creating the opportunity for bad press. I think we need to spend more time chasing those people rather than chasing everybody and making life difficult for everybody.

This concern is shared by Professor Bob Baxt, Chairman of the Law Committee of the Australian Institute of Company Directors, who says:

There is too much legislation introduced on the basis of, 'It's a good idea; let's do something and we will see where it takes us … For the phoenix company and the phoenix director, there are processes in place which suggest that the regulator has the power to deal with them. Why should all of us be subject to those rather burdensome laws just because there are one or two who may have escaped the safety net?

The coalition calls on the government to define phoenix activity so as to properly assess the impact of the legislation on Australian business. Australian business can hardly be required to comply with legislation where the central behaviours are not defined.

We view this legislation as bad legislation because it fails to properly address the specific problems faced by Australian business, and the government has got its reaction wrong. Despite a Senate inquiry and assurances from the ATO and ASIC that both were cracking down on phoenix companies, and despite new tax office powers to demand security deposits from suspect businesses to combat fraudulent phoenix activity, the illegal practice is reportedly continuing to flourish.

Treasury, the ATO, ASIC and industry groups have identified a range of factors which contribute to the extent of phoenix activity, including regulators not fully utilising the existing powers available to them, a lack of prosecutions, under-resourced regulators, insufficient follow-up on complaints and inadequate penalties to act as a deterrent. The government has failed to outline a coherent strategy for tackling phoenix activity to protect suppliers, contractors, customers and employees, and it damages prosperity and economic confidence, as evidenced by, for example: (1) the failure to define phoenixing in the bill; (2) the lack of evidence about how additional powers will better enable ASIC to tackling phoenixing; (3) ongoing concern about regulators not utilising current powers to investigate and take action on phoenix activity; (4) previous assertions by the government that other actions and previous expansions of regulator powers and penalties would be effective; and (5) the absence of any recognition of the role and capacity of liquidators in tackling phoenixing.

This bill deserves extra scrutiny. Declining a House economics committee inquiry makes a complete mockery of Gillard's promise to 'let the sun shine in' on parliament. The coalition will oppose this bill in the House and we will oppose it in the Senate, pending a thorough and meticulous investigation by the Senate Economics Legislation Committee. This bill deserves the scrutiny of parliament and of the tried and tested committee system. Labor cannot continue to hide from their bad legislation.

This is yet another example of Labor incompetence. The Gillard government's response is yet another example of its preference for blanket over-regulation that strangles enterprise and prohibits good people from getting on with their job rather than the effective enforcement of existing laws and using existing powers and, where appropriate, seeking additional specific powers to deal with things that cause harm, such as phoenixing.

Julie Owens (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

What an extraordinary contribution! I can only come to the conclusion that the shadow Treasurer is speaking on the wrong bill. This bill, the Corporations Amendment (Phoenixing and Other Measures) Bill 2012, does not go into the issue of penalties for directors. There was another bill before the House of Representatives Standing Committee on Economics last year, which the committee inquired into, which did involve directors penalties. The committee, in its recommendation suggested that those provisions—

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I didn't say that; you weren't listening!

Julie Owens (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

Well, as far as I am concerned, you were talking on the wrong bill—and I would appreciate if I could continue—

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

Order! Comments will be directed through the chair.

Julie Owens (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

The committee recommended that those sections be removed from that bill at the time and be considered further, which they are being. This particular bill involves other matters, and they are really quite specific and are not the subject of much that the shadow Treasurer was talking about at all. I would suggest to the shadow Treasurer that—even though I cannot in this House, without breaching the privilege of my committee, respond to his allegations about what the committee may or may not have been doing—before he makes any more allegations he might actually like to talk to the members on his committee and find out what actually did happen, because, again, I think he is talking about the wrong bill. But far be it from me to suggest that the shadow Treasurer should actually do some work before he comes into this House and makes such ridiculous statements.

This bill actually involves two very specific changes. The first one gives ASIC additional powers to intervene in cases where the directors have abandoned a company—walked away from a company, not bothered to wind it up properly but simply walked away and abandoned it. The implications for workers when a company does that are such that the workers are not entitled to access the government's General Employee Entitlements and Redundancy Scheme—commonly known as GEERS, and I will refer to it by its short name from now on to save us all! At the moment an employee would have to go to court and incur legal costs in order to access GEERS. This, of course, is not fair. The Prime Minister, in the election campaign, made a commitment to protecting workers' entitlements, and this is very much a part of that process.

The bill allows the Australian Securities and Investments Commission to wind up a company where it has been abandoned by its directors. Specifically, the bill will provide ASIC with the following discretionary powers: the power to place a company into liquidation in circumstances where ASIC currently has the power to deregister the company; the power to reinstate any deregistered company and immediately place it into liquidation; and the power to place a company into liquidation where ASIC has reason to believe that the company is no longer carrying on its business. If the company has been abandoned, but has not yet been deregistered, employees or ASIC currently have to apply to the courts and incur legal costs in order to place the abandoned company into liquidation before they can access GEERS. In cases where companies have simply been abandoned by their directors, this bill allows employees, through the process of ASIC placing the company into liquidation, to access the GEER Scheme. This is a significant improvement for many, many workers around the country who find themselves, through no fault of their own, unable to access their legitimate entitlements because of the operations of a phoenix company.

The second part of this bill involves the placement of insolvency notices. It implements part of the government's insolvency reform package by facilitating the establishment of a single online insolvency notices website. The Attorney-General and the parliamentary secretary announced the government's insolvency reform package back in December 2011. The package included a proposal to do just this—to require insolvency notices to be posted to a new website to be established as part of the ASIC website from 1 July 2012. The current requirement is that insolvency notices are placed in newspapers and gazettes in a prescribed manner, but forthcoming regulation will require this to be via the ASIC website.

This represents a substantial saving and reduction in administrative burden for creditors and for companies. The establishment of the insolvency website will replace around 53,000 newspaper advertisements over the next four years, making it easier for creditors to access information. The regulations will set a lodging notice on the ASIC website, but the reduction in the number of advertisements is expected to save the industry around $15 million over the next four years. There are, of course, also significant costs to the external administration in complying with the current requirement that the advertisements be placed in newspapers. These costs are ultimately borne by creditors through reduced returns. There are also costs to the creditors in monitoring the numerous newspapers for relevant notifications. So it is a substantial simplification of the current process, a reduction in the administrative burden for people who find themselves dealing with companies that go into liquidation, and a substantial saving in costs. These are both very good reforms. In some ways they are technical reforms, but they are reforms that have substantial outcomes.

I will go back to some of the comments that the shadow Treasurer made. His comments were about phoenixing more generally. Of course this piece of legislation does not deal with the entire phoenixing behaviour. Of course this legislation does not involve all of the changes that need to be made in order to reduce phoenix activity and protect consumers and creditors from that activity. Of course there is other work to be done. It is ridiculous to assume that any particular legislation, particularly a technical bill like this, would be everything.

But—again I make the remark—most of the comments of the shadow Treasurer did not relate to this bill at all. In fact, he had very little to say on this bill. That is a shame because I think, for many workers out there who already have found or will find themselves the victims of phoenix activity, this first amendment that allows ASIC to intervene when a company has been abandoned will be of great benefit to them. I would have expected even the opposition to be in batting for workers who find themselves in those circumstances, so it is a very real shame that the shadow Treasurer has decided to make some political points on a bill that is not even before the House rather than deal with the really important elements in this one. I commend the bill to the House.

Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. Predominantly it is broken up into two sets of measures. The first set of measures contained in this bill strengthens the powers of the Australian Securities and Investments Commission to place companies into liquidation. The second set of measures in the bill seeks to facilitate future requirements of public notices in corporate internal administrations to be published on a single, publicly available website.

This bill is meant to enhance the ability of the Australian Securities and Investments Commission to combat phoenixing activity. The bill gives ASIC significant new discretionary powers to place a company into liquidation. These powers can be used in a range of circumstances. If a company is six months late in responding to a compliance notice and has not lodged other Corporations Act documents in the preceding 18 months, ASIC has the capacity to wind it up. If ASIC has no reason to believe a company is carrying on a business and no objection to liquidation is received from the directors, if a company's review fee has not been paid within 12 months or if a company has been reregistered in the preceding six months and ASIC has reason to believe that it is in the public interest to place the company into liquidation, ASIC has the capacity to wind it up.

The bill also alters the publication requirement of corporations' insolvency notices to allow for publication on a single, ASIC administered website. Finally, the bill establishes a duty of receivers, administrators and liquidators to notify the Secretary of FaHCSIA upon their appointment to a company that is a Paid Parental Leave employer.

Phoenix activity occurs when the directors of a company deliberately misuse the corporate form with the intention of denying unsecured creditors access to the assets of the company in order to meet their unpaid debts. Typically, the activity is associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The directors then place the initial company into administration or liquidation with no assets to pay employees' entitlements or to pay creditors or the tax office and then carry on merrily conducting business in the new company structure.

It costs the economy billions of dollars a year and, despite a multitude of reforms in the past few years, phoenix activity remains strong. Research from Dun and Bradstreet reveals that 29 per cent of companies that became insolvent in 2009-10 had at least one director who was previously involved with a wound-up entity, compared to just 10 per cent during the 2004-05 financial year. The coalition does not support the activity of phoenixing, where businesses break the rules to profit for themselves at the expense of employees. There is no way that the coalition supports that type of behaviour. However, we do have concerns with the way in which this bill presents more powers to ASIC to administer, and we do not believe it will meet its objectives.

According to the Australian Taxation Office, there are about 6,000 phoenix companies in Australia and 7,900 to 9,000 directors who will have personal liability under this legislation. Why is it that, with the powers that already exist with the tax office and ASIC, these companies are able to walk in the very next day and get a new tax file number? From a business perspective, it beggars belief that they can do that. There are so many tools available to departments, to government, to prohibit this. The measures that are being put forward in this bill to try to curb phoenixing are like using a sledgehammer to break a walnut. If we just applied some common sense to this, we would get a far more effective outcome. I have asked this question of the Treasury and the tax office, and no-one can answer me. I find it difficult to comprehend.

Phoenix activity was first exposed in 2001, during the Cole Royal Commission into the Building and Construction Industry, which uncovered at least 18 cases of it. Since then, it has been identified in several other industries, most notably in property, information technology, telemarketing and other labour-intensive industries. Of course the coalition is strongly opposed to these kinds of fraudulent activities and supports all measures to stamp it out. Phoenix activities can have a significant impact on suppliers, contractors, customers and employees who are denied their entitlements and, if unchecked, can erode the reputation of the Australian business community and reduce confidence in our world-class corporate regulatory framework. However, it is disappointing to see the government approaching this issue in their customary ad hoc and confused fashion. As Australia's corporate regulator, ASIC have a rightful role to play in properly overseeing and enforcing existing legislation, but their application of rules and regulations needs to be properly scrutinised by parliament to ensure it is being done in accordance with the original intent of the legislation. My concern is that this bill does not allow for the appropriate parliamentary scrutiny of the new powers provided to ASIC.

One of the major contributing issues to phoenixing activity is that the regulators are not fully utilising the existing powers available to them. Other issues include a lack of prosecution, underresourced regulators, insufficient follow-up on complaints, and inadequate penalties to act as a deterrent. In this context, the case for additional new ASIC powers seems exceptionally flimsy. It often seems as if every second bill that comes through this place somehow involves increasing the size of the bureaucracy in one or more government departments, putting more bureaucrats on the ground. Whatever the reason may be, if ASIC are not currently utilising the powers already available to them then it is pretty hard to understand why they need more. Why does this bill strengthen ASIC's powers when they are already underutilising the powers that are available to them? We fundamentally believe that that part of the bill is flawed.

The coalition is also concerned that the government seems to be taking an ad hoc approach to the targeting of fraudulent phoenix activity by introducing many pieces of related legislation in a thoroughly uncoordinated manner. By way of example, I refer to the current bill and the previous bills, which were heavily criticised in the House of Representatives Standing Committee on Economics.

On this side of the chamber, it is our belief that the government has failed to outline a coherent strategy for tackling phoenix activity. This is evidenced by the failure to define 'phoenixing' in this bill. I challenge anyone to find, in any of the government paperwork, what the definition is. If you look hard, you may find a legal definition on the ASIC website, but that is about the only place where it starts to get serious about what the definition of phoenixing is. The government's failure to outline a coherent strategy is also shown by the lack of evidence about how additional powers will better enable ASIC to tackle the problem; ongoing concerns about the regulators not using current powers to investigate and take action; previous assertions by the government that other actions and previous expansions of regulatory powers would be more effective; and the absence of any recognition of the role and capacity of liquidators to tackle the problem. For these reasons, I believe the most appropriate course of action for the government is to withdraw the current bill and instead engage in some meaningful consultation to address the completely legitimate concerns of the relevant stakeholders. Only then will it be in a position to take a suitably coordinated legislative approach to what we all agree is an extremely serious matter of public policy.

As a minimum starting point, the government ought to consider the proposals paper on combating phoenix activities released in November 2009 by the Hon. Nick Sherry, who was at that stage the Assistant Treasurer. May I add that, in the short time between then and now, we have seen five Assistant Treasurers. There were 11 proposals for combating phoenix activities in that proposals paper. None are reflected in the new ASIC powers—not a single one. It stands to reason that the 11 proposals would be a good place for the government and the new Assistant Treasurer, whoever it is—possibly we will find out tomorrow or the next day—to start when they go back to the drawing board. If the government fail to see the sense of going back to the drawing board, this bill at the very least needs to be thoroughly examined in the Senate Economics Legislation Committee.

Let us be clear about this. The problem is not going to go away, because business conditions at the moment are some of the worst I have ever seen. Small business start-ups last year were down 95 per cent. How is that for business confidence, Mr Treasurer? Analysis by Dun and Bradstreet found that business failures last year were up 40 per cent, and CEO Christine Christian is on the record as saying that Australian business failures have trended steadily upwards since 2008, growing more than 30 per cent over the last three years. This coincides with Dun and Bradstreet's downgrades during the December quarter of more than 128,000 firms that are likely to experience more financial distress over the coming 12 months.

When we talk about downgrading business confidence and the increased potential of phoenix activities as businesses continue to find it hard to make a living, I find it incomprehensible that every day when I walk into this place the opposition are constantly browbeaten by the Treasurer and the frontbench on the strength of the economy and how great things are. I encourage those members of the frontbench who want to take that line about the strength of the economy to go have a chat to some businesses when they return to their electorates. I had the opportunity to speak with one of my electorate's business owners the other day. He employs 80 blokes in fruit and vegie transport, and he said to me: 'Scotty, I have never seen it so tough. The banks are squeezing us. I've been around the industry a long time and I have never seen it as tough as this.' There is quite a contrast between the story we hear in parliament and what is being said out there on the street.

It is this type of economic climate where we are likely to see an increase in the amount of phoenix activity as more and more businesses get into financial difficulty. This is not to defend the actions of the fraudsters who try to skate away from their creditors; it is simply to acknowledge the true potential magnitude of the problem. For that reason, it is crucial that we get this right. It is vital that we protect those small operators, contractors and employees who tend to be the victims of phoenix activity. In its current draft, I am convinced that this legislation is not up to the job. I have some other issues that I want to raise, but I am going to run out of time.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

No, go for it.

Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

Go for it? I briefly touched on this earlier—that is, the government's position with reference to phoenixing with the powers available to them that already exist. In wrapping up, we have 6,000 known phoenix operators. The government can put a number on them, so we know how many there are. We also know there are 7,500 to 9,000 directors involved in phoenixing. So why is it that the department, the government, Treasury, the Australian Taxation Office or ASIC, with the powers that are available to them at the moment, which are underutilised, is allowing these repeat offenders to turn around and start trading the next day by getting access to another tax file number. I just think that it is a simple remedy and the way that the bill presents at the moment, I do not believe that the coalition will be supporting it.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

It is a pleasure to talk on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. This is a good bill, which is probably overdue in a lot of areas. I understand the anxiety of a number of coalition members—I would be anxious too if I had been in government for 12 years and done nothing about it. It takes a Labor government to come in and start doing the good work that is required, to start taking an interest for the first time in what has been acknowledged as a problem in the business community for many years.

It is a difficult issue: phoenixing takes many different forms. Some people might be listening to this and think that phoenixing does not sound that abhorrent, but it actually is; it is very bad for a lot of people. It is bad for the people who work for those companies, for the people who miss out on their entitlements or in some other way lose their job. It is also bad for the consumers or suppliers or any people related to the business that is shut down and then restarted in another form elsewhere. So it is important that we actually do something about this and that we make some changes to account for what has been an ongoing problem for many years.

I want to thank the Parliamentary Secretary to the Treasurer, Mr David Bradbury, for his good work in this area. When we first got elected to government in 2007, we started to look at some of the issues around business, small business, consumer protection and the Corporations Act in particular to make improvements to strengthen the regulator, the Australian Securities and Investments Commission, to make all those changes progressively in consultation with the industry and in consultation with stakeholders to make sure that we take on those tough challenges. Mr Deputy Speaker Georganas, you would agree that when it comes to tackling the tough issues, that when it comes to delivering, actually getting these things done, it always seems that it is Labor governments who do these things and not just talk about them, which is what we often see from the other side.

In particular, this bill introduces an administrative process for ordering the winding-up of abandoned companies to facilitate access to the government's General Employee Entitlements and Redundancy Scheme, called GEERS. It also introduces a regulation-making power to prescribe methods of publication of notices relating to events before, during and after the external administration of a company. The bill also makes miscellaneous minor and technical amendments including requiring insolvency practitioners appointed to a Paid Parental Leave employer to inform the Department of Families, Housing, Community Services and Indigenous Affairs, FaHCSIA, of their appointment regardless of whether FaHCSIA is a creditor of the company. So it is a step forward on the complex issue of how to deal with a company that technically fails or shuts down and may or may not re-emerge.

These are sometimes difficult questions and many people have deliberated over these issues for years and not been too sure where to begin. Mr Deputy Speaker, I can assure you that this Labor government does know where to begin, does know how to respond to what is clear market failure in areas, including the abuse of consumers and workers, and does know how to do it in a measured way—not stepping too far and recognising and acknowledging that for very good reasons some companies do fail and may begin again. It might be a genuine failure and we need to acknowledge that we do not penalise those who are the true entrepreneurs and innovators—those who take personal risks and take risks with other peoples' capital and their own capital—and make sure that we do not penalise them by making life too difficult. Some of the greatest economies in the world are those where you have successions of failed businesses and enterprises who continue to reappear, only to succeed and become great organisations. I think we need to be careful about this distinction between genuine failure and people reforming and what is the insidious practice of phoenixing. I believe that the Corporations Amendment (Phoenixing and Other Measures) Bill 2012 does exactly that.

The bill contains three main measures: a new power for ASIC to administratively order the winding-up of a company, new powers with regard to a range of publications, and new obligations on liquidators, which I think is really important. While I talk about liquidators, it is important to acknowledge that again it is this government that has taken on some of the complex issues in the financial services sector and looked at some of the problems that are inherent. We have worked very well with the regulator to make sure that we curb, if not completely rid the community of, some of the worst practices of liquidators, for example.

The bill also provides that the Australian Securities and Investments Commission has the power to place abandoned companies into liquidation without applying to the court. That is an important power. It implements part of the government's Protecting Workers' Entitlements package election commitment and facilitates greater access to GEERS. We have seen repeatedly, year after year, that companies have failed and have left the people who work for them high and dry without access to their entitlements and without a whole range of payments that they were entitled to. It is important that we work with the regulator, the courts and others to make sure that is no longer the case.

The bill also replaces the current obligation to publish external administration notices in newspapers or in the ASIC Gazette, with a requirement to publish in a prescribed manner. Regulations will be made to facilitate the publication of these notices on a single insolvency notices website so that people can have access to it. We hear criticisms that we do not do more about the failure of a company in one instance and its reappearance in another instance. One of the ways we can respond to this, where there are clear phoenixing practices going on, is to have a single place where we can start to record all of these issues and make sure that people are aware of them.

The bill also makes further minor amendments to require that insolvency practitioners properly inform related government agencies about their appointment and what is going on in those particular areas. The bill has a range of powers in other areas and sets specific time frames. It looks particularly at the circumstances around a company that has failed. ASIC will be able to place a company into liquidation where a number of things happen. If a company has failed to respond to a return of particulars within a period of six months or not lodged any other documents in 18 months, then ASIC believes it is not carrying on a business and has powers for making a winding-up order in the public interest. This is a good thing because ASIC's workload, as the regulator, is difficult enough given the more than 1.6 million organisations it has under its charge in this country, let alone those which sit on the books with no activity at all—or with particular misactivity—or which do not respond to requests for particular documents that are required. When an organisation does not respond or comply with forms or other documents they are meant to provide, that can be the first sign that there may be a problem with that company.

It is important to arm the regulator with as many tools as is possible in a fair manner so that it can carry out its work fully and diligently. Where a company has failed to pay in full its review fee for a period of 12 months—where companies cannot even make that effort—or where there are distinct issues or problems at the most rudimentary end of their obligations to comply, then the regulator ought to have power over them in those areas. ASIC will also be able to place a company into liquidation where ASIC has reinstated the registration of a deregistered company and it believes that making the winding-up order is in the public interest.

These are extensive powers. I heard earlier a member of the opposition say that there are no new powers for ASIC. This is simply not the case. There are new powers contained not only within this particular amendment but in other areas. There has been an ongoing program from this government to give further powers, where necessary, to the regulator to be able to carry out its duties fully—in particular, where people's life savings, work entitlements or investments are involved. In cases where companies are being phoenixed the powers of ASIC that are contained in this particular amendment, as well as the powers that have been enhanced in other areas of ASIC, will apply.

ASIC's powers will also apply, for example, where ASIC has reason to believe that the company is no longer carrying on a business and there is no objection by the directors of a company to being wound up once a notification of ASIC's intentions have been registered.

The bill also provides a specific power for the regulator to appoint a liquidator to effect the winding-up and determine the remuneration paid to the liquidator. That is a really important provision. We have heard in many media reports and elsewhere of liquidators being appointed by a failed organisation, or by specific persons, for their own advantage. There have been court cases and findings against a number of liquidators and I believe—I will be corrected if I am wrong—there was a case just recently where a liquidator was not only banned but sentenced to jail over practices which involved taking advantage of the liquidation of a company in terms of the fees they were paid and some fraudulent behaviour around their activities. So it is important we also make sure that ASIC has power to appoint liquidators specifically and to determine what that remuneration should be.

There are a number of other parts of the bill. I have spoken before about the publication of insolvency notices. That is important. That will make a clearer statement about the matters that are going on with particular liquidations or the failure of certain companies, and other notifications. In all, the amendments in this bill do a range of things. Most importantly, they deal with some matters that have been outstanding for many years. They deal specifically with the consumer protection provisions and they enhance ASIC's powers to deal with phoenixing, to deal with particular directors and to deal with organisations that fail.

Very importantly, the legislation provides for proper protection of employees' entitlements by strengthening the link with the GEERS program. It provides for a range of activities to further enhance ASIC's ability to measure, monitor and deal with poor practices in the business sector. I am very supportive of this bill and these amendments and I commend the bill to the House.

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

I am pleased to rise to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. The question before the House this evening is not whether phoenixing—which is, I might say, a particular ugly word when it is used in this context—is a deeply objectionable practice. Of course it is deeply objectionable when company directors and managers use the corporate structure to defraud creditors. There is no question in the mind of anybody in this place as to whether phoenixing is a highly undesirable kind of conduct which ought be prevented to the maximum extent possible. The question before the House this evening is a more specific and precise one. The question is this: will the measures contained in this bill in fact be effective in dealing with the question of phoenixing—indeed, are they in fact linked in any way to the conduct of phoenixing?—or are they instead yet another example of a technique that is all too common from this government: the technique of identifying a problem and offering what is claimed to be a solution, which, on analysis, is found to be deeply deficient and ineffective? This technique is one that we see used all too commonly. I put it to the House that we are seeing this technique being used yet again.

I want to make three observations in relation to this bill in the time available to me. Firstly, phoenixing activity is of course highly objectionable and to be deplored. Secondly, there is no evident linkage between the measures contained in this bill and phoenixing conduct. Thirdly, the measures in this bill give a degree of additional discretion and additional power to a regulatory agency, ASIC, and that discretion and those powers can be exercised without the need to obtain, for example, a court order. In the coalition's view, that discretion and those powers are excessive.

Clearly, the scope of these powers and that discretion needs to be weighed against the effect that these measures will have in dealing with the evil of phoenixing. When on analysis we see that there is very little reason to have confidence that these measures will have any effect, that adds weight to the serious concerns that the coalition has about the excess of additional discretion and additional powers given to ASIC.

Let me turn to the first point that I want to make, which is that it is uncontentious that phoenixing conduct is to be deplored. The term 'phoenixing' is understood to mean in this context the transfer by directors of the assets of a company that has substantial debts to a new company of which typically they are also directors. To take a specific example, you might have a company called Paul Fletcher Ventures Pty Ltd that is engaged in dubious conduct and that has accumulated substantial debts.

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

Never!

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to 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)

Gai Brodtmann (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012, which has been introduced into the House by the Parliamentary Secretary to the Treasurer. It is an important bill because it puts Australian workers right at the centre of policy making—which is probably why the member opposite is scratching his head a bit, because he does not quite get that concept. It shows how committed the Gillard Labor government is to ensuring workers get a fair go, and its primary aim is to protect their rights. Again, it is no wonder the other side is a bit bewildered by all this. These rights were decimated by the former government. We all saw how devastating Work Choices was for Australian working families. We all know the backlash that those opposite received when they tried to destroy workers' rights. In fact, they got thrown out of office for it. I think we all know that they are so eager to get back into office so they can set out to destroy the rights of working people again.

I know they are particularly keen—they are itching; they are licking their lips—to get their hands on the people of Canberra. When the member for North Sydney was talking about this bill earlier he was actually deriding the acronym of the FaHCSIA department. He seemed to be highly bemused by that acronym. To me it was just typical of the attitude he has towards not just Public Service departments but particularly public servants. He has made a commitment that, should the coalition win the next election, they will get rid of 12,000 Public Service jobs. And that is just the beginning. They will also get rid of government departments—the Department of Climate Change and Energy Efficiency being one of the first on the hit list. I can understand why the member opposite cannot see what this bill is designed to do, because he just does not get the fact that it is all about protecting workers' rights. But that is a discussion for another day.

The Corporations Amendment (Phoenixing and Other Measures) Bill amends the Corporations Act through three main measures. It gives the Australian Securities and Investments Commission the power to wind up abandoned companies, it prescribes publication of insolvency motions for better transparency and it creates a new obligation on liquidators to inform FaHCSIA—which, for the information of the member for North Sydney, is the Department of Families, Housing, Community Services and Indigenous Affairs—of their appointment to a paid parental leave employer.

We are talking about tackling the issue of phoenixing, which is something we cannot be complacent about, as the impact it can have on workers is absolutely devastating. The bill provides ASIC with a new power to administratively order the winding up of companies that have been abandoned by their directors, effectively delivering on the government's election commitment, as announced as part of the Protecting Workers' Entitlements package, and facilitating greater access to the government's General Employee Entitlements and Redundancy Scheme.

GEERS is a scheme funded by the government to assist employees who have lost their employment due to the liquidation or bankruptcy of their employer and who are owed certain employee entitlements. Where the employer is a corporation, a precondition for any payment from GEERS is that the company be placed into liquidation. Although large creditors, such as the Australian Taxation Office, may take steps to place a company into liquidation, this is not always the case. At present, employees have to apply to the courts and incur legal costs in order to place the abandoned company into liquidation before they can access GEERS. But the cost of placing a company into liquidation can be prohibitive. We all know that. Legal fees are expensive for employees, particularly when they have incurred losses in wealth due to the failure to receive their entitlements from a company. This bill will mean that, in cases where companies are abandoned by their directors, ASIC may choose to exercise its power to place the company into liquidation so that employees of the company can access GEERS.

This bill also provides ASIC with the power to place abandoned companies into liquidation in four separate and distinct circumstances. ASIC will be able to place a company into liquidation where a company has failed to respond to a return of particulars within six months, it has not lodged any other documents in 18 months and ASIC believes that it is not carrying on a business—essentially it is invisible; it is a phoenix operation, not a viable operation—and that making the winding up order is in the public interest. ASIC will also be able to place a company into liquidation where: it has failed to pay in full its review fee for 12 months; ASIC has initiated the reinstatement of the registration of a deregistered company and it believes making the winding up order is in the public interest; and ASIC has reason to believe that the company is no longer carrying on business and there is no objection by the directors or company to being wound up once notified of ASIC's intentions.

The bill also replaces the current obligation to publish external administration notices in newspapers or in the ASIC Gazette with a requirement to publish in a prescribed manner. Regulations will be made to facilitate the publication of these notices on a single insolvency notices webpage which will form part of the ASIC website. I think this is a long overdue development. It is an important part of the government's insolvency reform package, replacing 53,000 newspaper advertisements over the next four years and making it easier for creditors to access the information in one location. I know this may not be a winner in the eyes of our newspaper magnates, but it is an important reform and will save the industry around $15 million over the next four years, as these costs are ultimately borne by creditors through reduced returns. There are also costs to creditors in monitoring numerous newspapers for relevant notifications, particularly as there is no set newspaper or day of the week on which notices must be published. I think we can all agree that this change is long overdue. It will ensure that people can go to one location to get the information about insolvencies and it will be a great relief to creditors.

Finally, the bill sets out a new obligation on liquidators to inform FaHCSIA of their appointment to a paid parental leave employer. Paid parental leave payments can be paid either to eligible employees through their employer, making it a paid parental leave employer, or to FaHCSIA through the Family Assistance Office. Where a company enters into external administration, it is no longer appropriate for the paid parental leave payments to be paid by the employer. This amendment will mean also that FaHCSIA will be better informed and better able to determine whether to continue paying paid parental leave payments to the company or make the payments directly to the employee.

Earlier today there was a great debate on the benefits of the Gillard government's Paid Parental Leave scheme. I commend my colleague the member for Robertson for bringing forward that matter of public importance on this issue. She spoke wonderfully in that debate. I commend her for bringing it to the public's attention and all my colleagues who spoke on it. This scheme is incredibly beneficial to working parents and in encouraging more parents back into the workforce.

Unlike those opposite, who wasted 11 years in government, we have implemented paid parental leave. Australia is no longer one of the few OECD countries that does not have such a scheme. I know those opposite are still trying to work out what sort of scheme they are going to have and I know that they are also still trying to work out their $70 billion black hole. Unlike those opposite, we on this side deliver. We have delivered a scheme that allows 18 weeks of paid leave to new parents. Those opposite only talk about paid parental leave, and we know that behind closed doors none of them think the opposition leader's grandiose plan for a new tax on paid parental leave is much chop.

I welcome this last amendment to the Corporations Act, because it recognises the need to protect women and men who are receiving paid parental leave entitlements. We have fought so long for these entitlements—the women of Australia, particularly, have fought for decades for these entitlements—that is why it is so important that everyone who is entitled to receive them actually receives them. The fact that a company goes into liquidation should not be a barrier to people receiving these entitlements. It is hard enough for employees who lose their entitlements and their livelihood through the actions of a dodgy employer, but no-one should be in a situation where they have just had a baby and then their workplace, which they were committed to returning to, goes under. This amendment will protect them and their family from such circumstances.

Amending the Corporations Act to ensure we protect the rights of working people more fully is good policy. It is Labor policy. Labor is all about jobs; it is what we do. It again shows how committed the Gillard Labor government is to protecting jobs and improving our economy. In fact, Labor has created more than 700,000 jobs since we came to office four years ago. We got rid of Work Choices and restored unfair dismissal protections that the former government took away from seven million employees.

We have a record low rate of unemployment: 5.1 per cent compared to the former government's efforts of 6.4 per cent. Unemployment in Canberra is even lower, I am proud to say, although that will probably not be the case should the coalition get back into government, because it will do its level best to make sure that the unemployment figure for Canberra goes through the roof. That is its mission

Labor is getting on with the job of creating jobs and protecting jobs. That is what this bill we are debating aims to do. I commend the Bill to the House.

Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

I also am very pleased to talk today to this very important piece of legislation, the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. I will make a few comments about the outstanding argument for this bill that has just been made by the member for Canberra. I noticed that her speech was littered with the terms 'workers' and 'workers rights'. In contrast, the member for Bradfield bemoaned the fact that ASIC will get more powers to deal with these dodgy participants in the practice of phoenixing. He talked about rights and liberties towards the end of his speech and listed—I know it was probably in descending order of those he thinks most important—the board members, the directors and the owners. I know he said employees, but he positioned them down the list and in service of those who are going to have most profit.

But this is a Labor piece of legislation that deals with ordinary workers and makes sure that we give to people the very rights that they have every right to expect. If you go to work you expect to be paid for your labour. To his credit, the member for Bradfield explained quite clearly the disgraceful practice that is phoenixing. My only worry is that perhaps he gave a bit of a manual to the less civic minded people listening to this broadcast and perhaps gave them a few ideas about what they might do. Luckily for those naughty people we will keep them out of jail, because we will stop them from phoenixing.

Mr Schultz interjecting—

We will give them the opportunity to do the right thing, because we will put in a framework that will support them as they act in the interests of their company's success. We support small businesses and their success. The employing capacity they have makes a really big difference to our country. Ninety-four per cent of our employees are in small businesses. We understand that.

Mr Schultz interjecting—

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member for Hume has been thrown out once today. He should not tempt fate again.

Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

I am glad I did not have to hear that, Madam Deputy Speaker. As I was saying, the reality is that we have companies that are engaging in extremely unethical practices and that are taking money away from employees. This legislation does three very important things. It introduces the administrative power that ASIC needs to make sure that, if it is planning to become bankrupt suddenly in order to keep its assets to itself and not pay its workers fairly, a company will have a whole lot more trouble achieving that end. Secondly, we understand that the publication of insolvency notices is going to change the way in which companies can make public the fact that they have become a failed company. I noticed that not many people from the other side of this chamber spoke about the fact that one of the things this legislation does is shift the place in which notification of a failed company has to be advised. Currently it can be in a newspaper. My understanding is that if a company becomes a failed company in New South Wales the less ethical types might decide to put a notice of that failed company in a newspaper as far away as Victoria. This legislation is going to require companies that have failed to put their details on to a public website.

Debate interrupted.