Kelvin Thomson (Wills, Australian Labor Party) Share this | Link to this | Hansard source

When I was in my office I had the opportunity to listen to a contribution by the member for Newcastle and I want to associate myself with her remarks and also acknowledge her work over many years in this place in the cause of good corporate conduct. The member for Swan sought more explanation of the Corporations Amendment (Phoenixing and Other Measures) Bill 2012, and I am happy to provide it to him and to the House.

This bill contains amendments that give the corporate watchdog, the Australian Securities and Investments Commission, ASIC, the power to order the winding up of abandoned companies, allowing workers to access their entitlements. The bill implements an important aspect of the government's Protecting Workers' Entitlements Package election commitment. That commitment included cracking down on companies that undertake phoenix company behaviour, which is of course where a business closes down one day and opens up shortly afterwards with a different name to avoid paying its legal obligations. This is grossly unethical behaviour, and I have always supported actions by governments of either political persuasion to tackle it. 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 the government's General Employee Entitlements and Redundancy Scheme, GEERS. This can be very onerous and unfair for employees, who quite reasonably feel that it is their money and that they should not have to spend good money to get access to their own money.

Since 1 January 2011, the government has improved the protection of employee entitlements by amending GEERS, and this bill will allow 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: firstly, the power to place a company into liquidation in circumstances where ASIC currently has a power to deregister the company; secondly, the power to reinstate any deregistered company and immediately place it into liquidation; and, thirdly, the power to place a company into liquidation where ASIC has reason to believe that the company is no longer carrying on business. This means that the corporate watchdog can step in and wind up a company so that workers do not lose their entitlements where directors have walked out on their business. I think this is a really worthwhile step forward and I congratulate the government on this initiative.

I am quite mystified that opposition speakers should not be supporting this initiative and that they are talking about going back to the drawing board. They say that they oppose phoenix activity, yet they oppose measures to stop it. It sounds to me as if they are not genuine. It reminds me of their position on people smuggling: they say they are opposed to people smuggling yet they block efforts to stop it. It makes you wonder just how fair dinkum they are.

According to research by Veda Advantage from July 2010, phoenix companies are on the rise and the corporate remnants of the global financial crisis are back. These companies have come back in the guise of new entities and are hiding their bad credit history by starting over on a clean slate. According to the report, this news has troubled many business owners, who are now engaging in credit checks to minimise business risks with new credit partners. The statistics behind these findings show that one in every 10 directors has been linked to a company with an adverse credit history in the last six months before starting a new company. The report also found that the number of new business registrations in Australia is at its highest in over a decade. In comparison to the first quarter of 2009, the first quarter of 2010 saw the number of new business registrations up by 23 per cent. The chances are, regrettably, that if a company enters into external administration it is twice as likely to start a new company within six months, and directors of these companies can also be involved in eight or nine other companies. The research suggests that directors linked to adverse credit history are seven times more likely to default in future than those with a clean credit history. The report warns that performing a credit check on your customers and suppliers could mean the difference between survival and collapse and could afford businesses the benefit of avoiding exposing themselves to credit risks and liquidity problems in the future.

Phoenix activity has a widespread negative effect on the Australian economy, but the failure of creditors to report it to the authorities means that it often remains undetected. It costs the economy billions of dollars a year and, despite reforms over the last few years, phoenix activity remains strong. According to the Australian Taxation Office, there are about 6,000 phoenix companies in Australia and between 7,500 and 9,000 directors who would have personal liabilities under the new legislation. Tax liabilities are often left unpaid after the liquidation of a fraudulent phoenix entity. This may reflect a range of factors, including the benefit that a phoenix operator can obtain from nonpayment of the business's taxation liabilities and the fact that such an operator need not be concerned with maintaining a commercial relationship with the ATO.

While the cost of fraudulent phoenix activity is difficult to measure precisely, it is undoubtedly significant. In the past, the biggest impact on the revenue has come from phoenix companies that failed to remit accounts withheld under the pay-as-you-go system. These funds relate to the tax liability of a particular employee, and it is as if the employer holds these funds on trust. Such funds should never become part of the cash flow of a business. That is quite improper. While the benefit from the nonremission of pay-as-you-go is often derived in relation to the salary and wages of the employees of the company, particularly a labour supply company, fraudulent phoenix activity also involves directors claiming access to pay-as-you-go credits in their own personal income tax returns where the company has not remitted and will never remit such moneys to the ATO. Such actions seek to take advantage of provisions in the taxation law that allow a taxpayer to access credits for amounts withheld irrespective of whether or not those amounts have been remitted. Fraudulent phoenix operators also benefit from the nonpayment of other liabilities imposed by the taxation law. This includes superannuation guarantee payments. The nonpayment of the superannuation guarantee is a particular disgrace as, unlike other liabilities imposed under Australia's taxation laws, it will result in a direct loss to the individual employee.

Historically, fraudulent phoenix activity has been most prevalent with small business—that is, those businesses with a turnover below or around $2 million. However, the ATO has seen fraudulent phoenix activity being undertaken by much larger businesses and by individuals who already have significant levels of wealth. Fraudulent phoenix activity is also being observed by the ATO within the property development sector and was reported last year as occurring in the financial advice industry. According to a Herald Sun article of June last year:

Insolvent financial advisers and companies are reopening their businesses under a different name, just like the notorious building industry practice of using so-called 'phoenix' companies.

Dishonest financial advisers are shutting down one business and opening up a new one in an attempt to avoid defending or paying out compensation to clients who were given bad advice.

A lawyer with national legal firm Maurice Blackburn, Briohny Coglin, has said, 'Rogue financial operators who gave negligent advice to their clients are able to re-establish their business and continue to practice.' Further, she said: 'In one particular case, several clients sought compensation due to negligent financial advice but the firm claimed insolvency. The same firm re-established their business under another name and continued offering financial advice.' Adding to the problem, many financial advisers lack sufficient professional indemnity insurance to cover claims. In one case last year a company argued that it had a yearly compensation limit of $2 million and that it had almost run out. In other cases, even if the firm or adviser has enough insurance cover, their policies often exclude claims involving fraud, material nondisclosure or insolvency.

Consumer Action Law Centre chief executive Carolyn Bond said that consumers were being left high and dry. She said:

We are aware of this problem with some advisers, particularly when they have given poor advice and their business is going into liquidation.

She went on to say:

They can have all these people claiming because they've received very poor advice and lost money and unfortunately they are not able to get their money back because the company shuts down.

Clearly this is unacceptable. Consumer campaigner and Choice spokesman Christopher Zinn said that changes to financial advice laws should help shut down the problem of phoenix companies. He said:

It's a problem, like it's been a problem in other areas, but we certainly think that proposed government reforms will help.

Concern over the spread of fraudulent phoenix activity to a wider range of businesses and across more industries is also heightened by the apparent increase in the number of individuals promoting the benefits of fraudulent phoenix activity. Unions have long complained about phoenix companies, and their complaints are legitimate. Employees are frequently out of pocket because of phoenix company activity. Companies close and declare bankruptcy, leaving unpaid employee entitlements. The owner or director of the company miraculously reappears, controlling some new company conducting the same or a very similar business. I was very pleased to hear the remarks of the member for Newcastle about the question of dealing with similar companies, which is presently being considered by the government.

The ACTU has proposed reforms that would define a phoenix company; allow ASIC to ban a phoenix company from using the company or trading name that was used by the failed predecessor company; permit creditors of the failed predecessor company and persons seeking to establish that they are creditors thereof to start or continue litigation against the failed company without the leave of a court; make the phoenix company vicariously liable for the debts incurred by the failed predecessor company, allowing the Commonwealth to recover tax debts and Fair Entitlements Guarantee payments as well as provide proceeds for the types of litigation contemplated; and make the phoenix company vicariously liable in any unfair dismissal claim brought against the failed predecessor company by its former employees. Employees should be able to bring claims within 12 months of discovering that the failed company has phoenixed instead of the normal requirement that claims be brought within 14 days of dismissal. These are thoughtful suggestions that warrant serious consideration by the government.

This bill is another important piece of reform being undertaken by the Labor government to protect employees who lose their entitlements through no fault of their own when their employer enters liquidation or bankruptcy. The message to rogue directors from this bill is that the federal government and ASIC are taking phoenix activity seriously and that any director who breaches his or her duties in this regard should expect their actions to be investigated and punished accordingly. It is a very good piece of legislation, and I commend it to the House.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

It was interesting to hear the member for Wills wind up his speech on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. It was a good wind-up, because he was quite accurate in summarising what this legislation is really about. He ended by saying that the message to rogue directors and others is—blah, blah, blah, blah. That was the message, but the actual content of this bill bears very little resemblance to that message. It is an effort to verbal the Australian public into thinking that this has something to do with phoenix arrangements when it has nothing to do with phoenix arrangements. In fact, if we applied some of the corporations disciplines—and even the ACCC had a look at this—the branding of this bill as something to do with phoenixing would be false and misleading item of conduct, because it is not about phoenixing.

The disappointing thing about the Labor member's contribution to this bill is that it has failed to address the fundamental misrepresentation that sits at the heart of this legislation. What it is about is something the member touched on—and, to his credit, he was quite open about it. This bill is about access to the GEERS. That in itself may well be a very virtuous policy objective. But call this what it is: call it facilitated access to GEERS arrangements—a scheme introduced by the Howard government to protect employee entitlements—and acknowledge that there is some obstacle in accessing GEERS benefits because of the way the scheme is designed and operates. Call it what it is. Be honest and true to the task of law-making in this nation. Be frank and upfront about the policy objectives of legislation and this government might see some people in the community actually finding out what it is about and might actually start to build some credibility.

Mr Bradbury interjecting—

I am being heckled by the member opposite, because he knows that I have belled the cat on what is going on here. This is a false and misleading legislative process whereby the policy objective is not at all related to the title that has been given to this bill. The bill purports to be about phoenixing and other measures—amendments to the Corporations Act—but what it is really about is access to the GEERS. It is interesting that we do not target the particular public policy area in which the problem, as the government describes it, arises and then talk about the way in which the GEERS is activated. Instead we go about creating a new range or a new avenue to instigate insolvency procedure, without any consideration about what that actually means for the corporations law, the state of the economy, the nature of entrepreneurship in Australia and the protection of a range of economic rights, including employee entitlements, that should be at the heart of a sensible public policy debate about amendments to the corporations law. We do not have that discussion. We are not having that discussion here, because that is not what this bill is about. This bill is not about any of the, say, tax-related measures that Senator Sherry, one of the four small business ministers opposite that I have faced in two years, has proposed. This bill is not about that. It is not about any of the 11 tax measures that are in this proposal.

Mr Bradbury interjecting—

Admiral Bradbury across the table is getting a little bit cranky, but he will know about his ministerial ambitions shortly—he might get to ride on a ship with some legitimacy. Senator Sherry's paper canvassed 11 tax measures that could address fraudulent phoenixing activity. Are any of those 11 tax measures the subject of this bill? No. The paper identified 11 other options for tackling fraudulent phoenix activity. It is not a bad body of work—there are some useful ideas and some worthwhile public policy proposals that would legitimately tackle fraudulent phoenix activity. Are any of those measures the subject of this piece of legislation? No.

We need a useful examination, carried out in a sober way, of the growing concern about phoenix activity—a phenomenon that has expanded under the Rudd and Gillard Labor governments. We need to be able to say this is getting away from us, it is a cancer on our economy, it is undermining confidence in entrepreneurship, it is impacting on employees, it is impacting on contractors and it is impacting on small business. These are very important issues. Is any of this canvassed at all in this legislation masquerading as a phoenixing bill? No—that is not what this bill is about. The government should attempt to establish with the Australian public some credibility and some trustworthiness by being frank about what this bill actually targets, and that is access to the GEER Scheme.

For those members opposite who seem unclear about what phoenixing activity is and what its impacts are, phoenixing is estimated to cost the economy $2.4 billion a year. It is a harmful, fraudulent practice that is hurtful to suppliers, to contractors and to customers who might undertake certain acquisitions or transactions only to have their money taken and the services or goods not provided. It damages prosperity and it undermines economic confidence. If you happen to be an employee in the small business that is done over by a phoenix company, where are your interests in this conversation about curtailing the growth in phoenix activity? They are not in here at all, because that is not what the bill is about. It is not about the Senate inquiry, and it is not about the repeated assurances from the tax office and ASIC that they have a tool kit that is not being fully utilised—but they will crack down, we are assured through Senate committees. We are still to see that crackdown. I have seen firsthand how underwhelming some of the ASIC investigations have been when I have raised issues with them and have got back a glib letter of a couple of paragraphs saying, 'There is no problem here. Thanks very much. We have had a look at it. All the best to your family.' That is not what we are looking for. We are looking for these assurances to be followed through.

Not so long ago the then Minister for Financial Services and Superannuation was talking about actions to ensure superannuation guarantees were being paid, and there was reference to deterring fraudulent phoenix company activities. The government is dragging in everything that might be wildly related to an insolvent business—but it is not tackling the issue of phoenixing activities even though the subject has been rolled out with all the rhetoric on a number of occasions. Dun and Bradstreet reveal that 29 per cent of companies that became insolvent in 2009-10 had one or more directors previously involved in the winding up of an entity, compared to just 10 per cent in 2004-05. We have seen a growth in the number of directors with some history being involved in companies that have subsequently become insolvent.

You would have thought there would be an alertness, a situational awareness, about this risk. With security deposits legislation the tax office is worried about PAYG contributions and suspect businesses being required to make those deposits. Despite all this, the illegal practice is reportedly continuing to flourish—and the reason for that is that the Labor government talks a great game on phoenixing, as we have heard in this chamber today, but it is not actually doing anything about it. That would be a worthwhile thing for the government to turn its mind to. There is no defining of phoenixing in this bill. There is a lack of any evidence about how these additional powers will better enable ASIC to tackle phoenixing. There are ongoing concerns that regulators have a tool kit available to them, an arsenal of weapons, and we are adding Exocet missiles to the list without contemplating what should be happening with the weapons available now. Every report we see shows there is an expansion in this activity.

Actions taken supposedly in the name of wiping out phoenix activity have made no difference whatsoever, from the available evidence, and then the government seeks to hide from scrutiny of what it is doing or not doing by hijacking a House of Representatives inquiry. But it gets even worse. The explanatory memorandum to the bill does not even attempt to do a regulatory impact statement—it says it is not required for these amendments. What is going on here? This is phoenix policymaking about the phoenixing industry. The government is just not serious. Why would it evade scrutiny? Why would it not prepare a considered response to Senator Sherry's work? Why does it keep prattling on about this bill somehow relating to phoenix activity when it does not—it is about access to the GEER Scheme. Let us have that conversation. There might be meaningful things we could do about accessing the GEER Scheme, like looking at the preconditions. If you are worried that people should be able to access the GEER Scheme, a scheme introduced by the Howard government, because there are some obstacles—and insolvency declarations are an obstacle—why not look at other entry criteria? Why not do that? That would be a sensible public policy debate. No—they just say that, despite all the powers ASIC has now, which are so underdeployed at the present time, they will put more tools on the table that can just sit there. This is the government's response to phoenixing. Well, this bill is not about phoenixing, and the government should be clear and frank about what it is actually about.

In the area of GEERS, what a good scheme the Howard government introduced. But, as I said, if there are concerns about accessing GEERS then deal with them as the public policy challenge—do not go around and masquerade that it is something to do with phoenixing when it is patently not. The explanatory memorandum—and I encourage the parliamentary secretary to have a look at it—actually says that this bill is about accessing entitlements under GEERS. So why not call it that? Why not do a bit of genius branding, like calling a show about footy The Footy Show? Why not call this legislation, ingeniously, the 'Accessing the General Employment Entitlements and Redundancy Scheme Bill'? Then everyone would know what this was all about and the government could not go around masquerading that this was something to do with phoenixing, which it patently is not.

I have touched on the GEERS issues because it is important. To the credit of the member for Wills, he is quite right—the ACTU has been quite clear about priority for access to whatever assets might be available in an insolvent company. The ACTU have been consistent and they have been upfront. They believe employee creditors have a priority over other unsecured creditors. They are looking at how, in the event of liquidation, the priority with which funds are made available changed. Let us have that debate. But do not come in here under the Trojan horse with a brand on it called 'phoenixing' to try to achieve that kind of outcome.

Why am I saying that you are achieving a kind of outcome that may reposition people's entitlement to access payments for an insolvent business? If you follow the work through, where there is an administrator overseeing an insolvency, GEERS requires that in bankruptcy cases the department will require claimants to sign a deed of undertaking. That deed of undertaking is designed to attract a priority repayment pursuant to section 560 of the Corporations Act. If it is about triggering that reprioritisation, have that as the public policy discussion. But, instead, we are coming in here under some other branding called 'phoenixing' to deal with issues that have an enormous impact on small businesses, which, the parliamentary secretary might realise, actually have employees, too. If they are displaced, by some backdoor reprioritisation of the distribution of available assets, from being paid for the goods and services they have received, they have an interest in that. You have heard that in submissions time and time again, but still you come to this bizarre and completely unfounded conclusion that there is no regulatory impact worth examining, when there is, and it should have been properly examined.

The honourable thing to do would be to name this bill what it actually is—that is, the 'Access to GEERS Bill,' and not the phoenixing bill—and have a proper inquiry about the impacts and implications of what it purports to do and what it will actually do. This government, by its numbers, has corrupted the parliamentary committee process in the House of Representatives. I hope the Senate gets a chance to have a look at this legislation, because the Senate hopefully will do a proper examination of what is happening in this space.

In the minute and a half remaining I will go to another part of the bill. This part of the bill seeks to ensure that an employer who is receiving payments under the government's Paid Parental Leave Scheme is actually held to account where it is not in a position to pass those payments on. Do you know what the solution is? It is the coalition's policy: pay it direct. Why doesn't the Commonwealth pay it directly to eligible employees? Why do you not do that? Why do you not embrace the amendments that we have on the table for a bill that has now gone into the Bermuda triangle? It was supposed to have been debated some weeks ago, but now no-one can find it. It has just disappeared. Why not find that bill again and embrace the amendments I have put forward.

The issue is one of imposing the burden of being the pay clerk for the Commonwealth. To transfer Commonwealth determined benefits paid for by the taxpayer straight to the employee should be the idea. But, no, you want to fit up employers with that. And we know what that is about, because another union document said that this is about elevating the employer contribution to ramp up the benefits because the government's scheme is deficient. Why do you not just pay it direct and then you would not need all of this legislative gymnastics to deal with a problem that is not of your making? It is in the second part of the bill. You should turn your mind to that and not to trying to get promoted in the reshuffle. Read it in the second part of the bill. (Time expired)

David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I rise on a point of order, Deputy Speaker Vamvakinou. The member opposite has been making repeated imputations and allegations in relation to your conduct. I think none of them are warranted. I think he should withdraw.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

Classy, mate. My time has expired.

Maria Vamvakinou (Calwell, Australian Labor Party) Share this | Link to this | Hansard source

The member's time has expired.

Mike Symon (Deakin, Australian Labor Party) Share this | Link to this | Hansard source

I speak in support of the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. This bill is part of the federal government's response to a growing problem of phoenix companies and phoenixing actions in companies, which are causing so much damage to people's lives—working people and suppliers and all sorts of other creditors who get burnt when phoenixing occurs. It is a huge problem, but it does not stop there; it also affects government because phoenixing is often done to avoid liabilities to the Australian Tax Office. I understand that the Australian Tax Office estimates the current stock of suspected phoenixing cases it is monitoring poses a risk to the revenue of around $600 million.

Unlike many people in this place, I have direct experience in what happens with phoenixing in companies. As some people will know I worked in the construction industry for over 20 years. Over that entire time the construction industry has been a really bad example of where companies have been set up, then been put into receivership and then trading again the next day with a slightly different name, from the same premises and with the same directors. It has happened time and time again. It is not only done to take entitlements off the workers of that company; it is done to get out of the debts the company may owe to other businesses and subcontractors.

When a company goes into receivership and a director takes that money, it has come from someone else it is owed to. Unfortunately, the system we have at the moment provides a get-out. It is not only small businesses of course but large businesses as well. These businesses are not always somewhere else. They can be right on your doorstep.

I have a very sordid example of one in the suburb of Mitcham, which is in my electorate of Deakin and is where my electorate office is located. It occurred in 2009 and involved a company called Forgecast Australia. The company has only one director, Mr Ian Beynon. When you read the history of Forgecast you will see that it is almost a model for anything that should be done in relation to phoenixing. Since 2003, this director has placed Forgecast, under various Forgecast names, into receivership, attempting to remove his liabilities to pay employee entitlements, trade creditors, subcontractors and tax debts—and, each time, after that the company has restarted with a very similar name and at the same location. If you visit the Forgecast website today it speaks to the company's 60 years of manufacturing in the eastern suburbs of Melbourne. I would like to quote from the Melbourne Herald Sun, which published an article back on 31 January 2010 titled 'Staff lose in buyouts'. I seek leave to table a copy of this article at the conclusion of my speech.

Leave granted.

This article was written by Samantha Amjadali. It is a particularly good article. It says: 'A millionaire businessman whose factory workers are allegedly owed $4.4 million in redundancy entitlements has been allowed to buy back the failed company for a third time but refuses to make payouts to workers. Employees at Forgecast in Mitcham claim owner Ian Beynon has been allowed to cheat workers again and again. Some have worked for the company for more than 40 years.' Mr Beynon is quoted in this article as referring to the concept of a phoenix company, under which the owners of a failed company can buy it back under another company's name, and said that he had followed all the correct legal process. He said, 'I just deal with what the law is and many people do this.'

An employee, John Huggett, who has worked as a polisher at Forgecast for 22 years and was owed $94,000, said that it was a huge betrayal. He went on to say, '57 of us went back after the first receivership to give Ian a chance. We even took reduced hours. But he's done it to us again.' The article went on to say, 'Dozens of former workers have maintained a 24-hour picket outside Forgecast's Cook Road premises for two months.' And that was the two months that covered Christmas of December 2009. I went down there and visited them on occasions, helping them unload firewood from trailers to keep their fires going. They sat there for two months and there was no great resolution for them at the time.

In the Herald Sun, John Huggett was quoted as saying, 'We haven't had a wage for two months and most of us are struggling with bills and mortgages.' That was the case when I visited those workers down there. Interestingly, it was not only workers down there. Subcontractors were camped outside the gates, too, and creditors were waiting to see if there was any way that they could get inside the locked gates to address what they were owed. Some were even lining up to remove equipment that had been delivered to the factory but which they had received no payment for.

This article then goes on to say: 'My Beynon first bought Forgecast, which makes metal fittings for cars and furniture, in 2003 and put it into receivership in 2004. He bought it back using one of his other companies, laid off 57 staff and then rehired the remaining staff on the condition that they worked fewer hours. Mr Beynon then laid off the workers again in November 2009.' That is the time frame when I visited. 'He liquidated the company soon after.' The article then goes on to say, 'Last week'—the second last week of January 2010—'the Mordialloc businessman again bought Forgecast and intended to reopen it and potentially rehire the picketing workers once the industrial action is over.'

On that point, the article in the paper is not quite right. I do not call it industrial action by workers if you are locked outside the gate and your boss is refusing to pay you for the work that you have done. That is not industrial action. To me, that is a breach of the employment contract. If a worker has done the work and earned the entitlements then I believe that the entitlements are theirs. They have earned them. For someone to come along and change the name of their employer and then say, 'I don't owe you any money,' is not right. That should never be right. It would not be accepted in many other areas that we deal with. Unfortunately, employment is an area in which it has gone on for an awful long time. Mr Beynon was quoted in the Herald Sun as saying, 'I don't owe them any money; the company owes them money.' You may remember that I said at the start of this speech that the company only has one director.

Cesar Melhem, the secretary of the Victorian branch of the AWU, said, 'Australian corporation law should be changed if it lets a company director get away with what Ian Beynon is getting away with today.' We are starting to do that now; this is the start. It is an important start, because for many years this has not been touched. There have been holes in corporation law as it applies to employees when their employer no longer pays them; when someone turns up to work one day and, instead of being able to go into work, finds a padlock on the gate.

As I mentioned earlier, when I worked in the construction industry this happened to me. I have worked for electrical contractors in the past. Although I was not there at the time—the industry is quite itinerant—this happened with the company that I had been working for two weeks before. The job that I had been on had finished. I had many friends still working there. It did exactly what I have been discussing. The company changed its name overnight—it added the word 'Australia' to the end of its name—and went back to work the next day. It was working on very large jobs at the time, such as the transurban tunnel in Melbourne. It continued working under a different name and escaped having to pay a lot of employee entitlements and escaped paying a lot of creditor entitlements as well. The tax office is usually the biggest one of those, but there were many others.

When we talk about employee entitlements, a lot of people may think that it is only a week's wage or a month's salary. But you have to look much deeper. You have to look at what else is in there. Those entitlements include things like superannuation. The workers at Forgecast were owed up to 15 months of superannuation. Where had the super money gone? It had not gone into their super accounts, even though it may well have shown up on their pay packets that they had received such money. They had not. The money had gone to the director of the company. If you multiply the superannuation contributions of 57 employees over the course of a month, a year or—even better—15 months to get the full figure, it rapidly adds up. It is also quite unfair in another way. It is unfair to legitimate businesses that do follow the law and do the right thing by their employees and do look after their staff, because it puts them at a competitive disadvantage. While someone is sitting back taking money that is not theirs and making a bigger profit out of their business, it can give them an opportunity to go out and undercut those that do the right thing. These sorts of things should not be allowed to happen. They should never have been allowed to happen. It is good that we as a government are starting to address these issues, because they go on around us now. From what I have read in regard to this, I think they are becoming more common. They have spread outside the construction industry and, obviously, Forgecast in Mitcham is an example of that. It is time that we really paid attention to this. I congratulate the parliamentary secretary who has brought in this bill because it is a recognition that this is not going to fix itself. It does not go away.

We hear a lot of talk about the General Employee Entitlements and Redundancy Scheme, as we have heard from those opposite, and I have spoken about it in this place on quite a few occasions before. I had to deal with that scheme many years ago when I was in a different job. It worked, but the biggest problem was waiting for a company to be placed in actual liquidation. If a company was in administration or receivership and not actually operating, workers then ended up in the twilight zone, because the GEER Scheme would not kick in at that point. So they could wait not only weeks but many months before there was any chance of a payout under GEERS. So although the scheme is a bit of a safety net, it has to be thought through a bit more as well because of this question: who is paying? The answer to that is that the Australia taxpayer pays for the funds that go into that scheme—and that is a good thing—whereas those who should pay should be the people who have run away with the workers' entitlements in the first place. That is why phoenixing is such a horrible thing to happen to anyone—not just the workers at a particular factory or with a particular employer but those right across the spectrum including everyone that is involved.

I go back to 2009 when I was talking to those local suppliers. In some cases they had, only a week or two before the factory gates were locked, provided $10,000, $20,000 or $30,000 worth of materials. Then they found that their materials were on the wrong side of the padlocked gate and, even though they might not have been unpacked from their boxes, they could not get in to retrieve them. That is not right and it is certainly not right that simply by a change of name somebody can wipe that out.

This legislation has a number of measures to stop phoenixing companies, so it is a good start. The first is to grant the Australian Securities and Investments Commission the power to order the winding-up of a company that has been abandoned to facilitate payment of employee entitlements. As I said, that is to give access to GEERS, and that is a good thing. Also, as I said earlier, employees have been able to recover some money through GEERS only once their company or employer has been placed into liquidation. This legislation will give ASIC the power to place a company into liquidation, meaning that the corporate watchdog can step in and wind up a company so workers can access GEERS, to have their entitlements paid out. This is also the case with companies that have been abandoned when their owners or directors have suddenly disappeared off the map. It is the same thing again with the GEER Scheme where there is a problem of actually delivering money to those that need it as the delivery could not occur until there had been a declaration along the way. To address this impediment to rights and to safeguard the rights of employees of failed companies to access GEERS, this legislation will provide ASIC with discretionary powers. It will give ASIC the power to place a company into liquidation in circumstances where ASIC currently has a power to deregister the company. It will give it the power to reinstate any deregistered company and immediately place it into liquidation. It will give ASIC the power to place a company into liquidation where ASIC has reason to believe that the company is no longer carrying on business.

I think this bill is a great measure to address the phoenixing of companies. The problems are wide but this is a fantastic first step that no-one has undertaken before. I commend the bill to the House. (Time expired)

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

As I follow the contribution from the member for Deakin, I note he is quite right in the speech he gave about the issues of phoenixing. The problem is that the first part of his speech relate entirely to issues that are not being addressed in this bill, the Corporations Amendment (Phoenixing and Other Measures) Bill 2012. This bill is not talking about dealing with companies that are wound up and are not paying suppliers and contractors. It is about providing access to the General Employee Entitlements and Redundancy Scheme.

But I do agree with those opposite that phoenixing is a cancer that is eating away at the foundation of trust upon which our business community and the broader community are built. It sours relationships and creates distrust that means people can no longer rely on those that they do business with, honouring agreements to supply the product or services bought or to pay for the products or services supplied. That was adequately outlined by the member for Deakin in his contribution. Another interesting thing about this bill is that there is no definition of what phoenixing is. To try to help those opposite I offer, by way of definition, that a phoenix activity occurs when directors 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, in some cases, liquidation—with no assets to pay employee entitlements or creditors. Jon M. Huntsman, in his book Winners Never Cheat, puts it this way:

In prosperous times, people sometimes wander from the financial walkway, blinded by the glitter of gold. The temptation lurks to prolong the euphoria by the easiest means possible.

In uncertain times, people may see dishonesty as the only way to pursue their careers, as the fastest cure to rebuilding wealth, or the only way to keep their heads above water. They may falsely believe they have nothing to lose but it is a slippery slope to be sure.

He makes the point that the most concerning issue is that there is a growing group of people who do not give a damn about others. They are only in it for themselves and they are a growing menace to the values that we, as Australians, hold dear. I will give you a personal example. My father worked as a ceramic tiler in the building industry. There were many occasions during his lifetime of work where builders who he had regularly been working for would close up on a Friday and inform him that his outstanding invoices would not be paid, yet they would be open again on Monday under a new name and ask him to do jobs that had been allocated previously under the old business. I have seen firsthand the consequences of this phoenixing activity. I understand that, rightly, we need to protect employees' entitlements in the event of businesses deliberately undertaking these phoenix activities. But nowhere in this bill is there any reference to people such as my father, a subcontractor, or other contractors and suppliers. How are they going to recoup their losses and payments that they have not received?

Over the years a number of reviews have been carried out to ascertain where improvements could be made to protect people against these cases of phoenixing. I refer to Senator Nick Sherry's Action against fraudulent phoenix activity: proposal paper of 2009, which my colleague the member for Dunkley referred to quite extensively in his contribution to this debate. It highlighted three of the most significant reviews that have been undertaken as a result of this fraudulent activity. Firstly, the Australian Securities Commission report of 1996 estimated that annual losses to the Australian economy as a result of fraudulent phoenixing were between $670 million and $1.3 billion per annum. More recent estimates now place this figure at some $2.4 billion per annum. In the Sydney Morning Herald on 3 January this year an article made reference to a comment by the Australian Taxation Office, which estimates that there are some 6,000 phoenix companies in Australia and some 7,500 to 9,000 directors who will have personal liability under this legislation. Secondly, the Cole royal commission in 2003 reviewed and highlighted fraudulent phoenix activity in the building and construction industry. The review heard evidence from a range of organisations about reports of significant phoenix activity in the industry, including tax avoidance or avoidance and underpayment of workers' compensation premiums. Thirdly, in 2004 the Parliamentary Joint Committee on Corporations and Financial Services received a number of submissions on instances of fraudulent phoenix activity in the Australian economy, noting that 'almost all' regarded the problem as a serious one requiring the attention of the legislature. They were supportive of strengthening measures against phoenix companies.

Since then the government has made a variety of attempts to introduce legislation to target phoenix activity. I will summarise them briefly. Last year the government included a series of different 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. Subsequent to that, the House of Representatives Standing Committee on Economics recommended that the government investigate whether it could possibly tighten the provisions in the bills to better target phoenix activity. Since then, in another example of this government's inability to actually complete anything significant, the government has withdrawn the provisions from the bill and is yet to provide any indication as to how it will tighten these provisions in line with the committee's recommendations. The bill we are debating today has nothing to do with those recommendations. It is designed to enhance the ability of ASIC to combat phoenix activity, yet ASIC has enormous powers already. The question is whether those powers are being adequately applied in circumstances of phoenix activity.

I will outline for the House the measures contained in this bill. It 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 responding to a compliance notice or has not lodged other Corporations Act documents in the preceding 18 months; if ASIC has no reason to believe a company is carrying on a business and no objection to liquidation is received from directors; if a company's review fee has not been paid within 12 months; and if a company has been reregistered in the preceding 16 months and ASIC has reason to believe it is in the public interest to place the company into liquidation. Significantly, from my reading of the bill, this applies to all companies. There is no definition of a phoenix company or what phoenix activity is, which would limit these powers of ASIC to particular instances that arise under phoenixing activity. The bill also alters the publication requirements of corporate insolvency notices to allow for publication on a single ASIC-administered website. Finally, the bill establishes a duty for receivers, administrators and liquidators to notify the secretary of FaHCSIA upon their appointment to a company that is a Paid Parental Leave employer. As my colleague the member for Dunkley quite rightly pointed out, if the government were prepared to actually take some input from the opposition and have payments made direct to employees rather than via companies, this requirement would not be an issue.

The coalition opposes this bill in its current form, as there has been no attempt made to define phoenix activities in the bill and there are a number of other glaring omissions. We believe it is paramount for any fraudulent activity to be clearly defined to protect legitimate companies and to ensure that they do not inadvertently get caught up in what is quite draconian legislation which will apply to all companies. The coalition is also concerned about the significant increase in ASIC's powers, given that the bill fails to outline why ASIC requires these additional powers when it seems incapable of using the powers it already has. As Australia's corporate watchdog, ASIC has a vital role to play in the application and enforcement of existing corporate legislation. Yet, as evidenced by the Dun and Bradstreet research, 29 per cent of companies that became insolvent in 2009-10 had one or more directors previously involved in a wound-up entity compared to just 10 per cent during the 2004-05 financial year. This raises more questions than it answers. One of the major contributing factors to phoenix activity is that regulators do not fully utilise the existing powers available to them and, therefore, we believe that ASIC should utilise its existing powers more effectively to combat the activities of these companies, ahead of legislation that implements any additional powers.

According to Senator Nick Sherry's 2009 discussion paper, a number of existing legislative and administrative mechanisms can be and are used to address aspects of fraudulent phoenix activity, including measures in taxation law as well as measures in the Australian corporate law regime, including those sanctioned in the Corporations Act 2001 and programs that are otherwise administered by ASIC. However, as the report states, it is clear that these existing mechanisms do not provide sufficient disincentive to prevent fraudulent phoenix activity. This results in a lack of prosecutions, under-resourced regulators, insufficient follow-up on complaints and inadequate penalties to act as a deterrent and, as a consequence, a loss of trust in the system. Once again, we see a government that is taking an ad hoc and bit-by-bit approach to the targeting of fraudulent phoenix activity by introducing various pieces of related legislation rather than creating legislation that seeks to deal with the problem as a whole. It is this ad hoc approach that creates the loopholes for companies to continue undertaking this activity.

In our view, the current bill should be withdrawn until there is sufficient and meaningful consultation with stakeholders to address their legitimate concerns and a comprehensive and coordinated legislative approach is determined for this very important public policy matter. All on both sides of the House would agree that this is a real stain on our society and on our business community. As a starting point, the government should consider the proposals paper on combating phoenix activity which I mentioned earlier. Of the 11 proposals made in that paper, none are reflected in the proposed new ASIC powers. The 11 proposals may in fact be a good place for the government to start when it goes back to the drawing board on this policy.

The coalition has a number of other concerns about the government's approach to phoenix activity including: how effective previous regulatory efforts have been in combating this practice; the appropriateness of available penalties; and the lack of recognition by the government of the role and capacity of liquidators in tackling phoenix activity. Failing the government seeing sense and going back to the drawing board, this bill needs a thorough examination by the Senate economics committee. The coalition would also like to see an economic references committee look beyond the government's piecemeal legislative efforts and inquire into the full range of options available to reforming the laws surrounding phoenix activity and also make recommendations to parliament for a comprehensive and coherent legislative framework.

In conclusion, phoenix activity has the potential to damage the reputation of Australia's strong business community and reduce confidence in our world-class corporate regulatory framework. Phoenix activity can cause significant harm to workers and small business people who are denied their legitimate entitlements. The coalition is strongly opposed to fraudulent phoenix activity and will support positive measures to reduce and eradicate its practice. Reducing phoenix activity will require carefully considered policy, not the ad-hoc approach outlined in this bill. The solution to phoenixing will require further detailed consideration. We will oppose this bill until further developments are fully considered. (Time expired)

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

I want to speak briefly in support of the Corporations Amendment (Phoenixing and Other Measures) Bill 2012, but before I get to those remarks can I say that I am totally at a loss to understand why the opposition would oppose this bill. I have listened to opposition speakers, one after the other, who have come into the chamber to put what I consider to be very shallow excuses as to why they will not support the bill, without putting up any constructive alternative amendments to it. What that exposes in respect to this bill is: on what side does the coalition stand on the issue of fairness?

Their position clearly exposes that they are not truly interested in supporting the rights of hardworking Australian people who have had their money taken from them because of the shonky activities of unethical businesspeople. Rather, the coalition would like to see the current laws stand as they are, which would enable those same shonky people to continue doing what they have been doing for years and years. If the coalition are serious about wanting to make changes to this legislation, if they are serious about wanting to protect workers in this country and if they are serious about wanting to protect small business operators who are also affected by unethical businesspeople then they would come into the chamber and at least, as a first step, support this legislation. Certainly there might be additional measures needed to be taken in due course, but this legislation is a step in the right direction.

Not once have I heard a member of the opposition in opposing this legislation come into the chamber and specifically say that this legislation is bad legislation or that it is wrong. They have tried to criticise it and they have tried to dismiss it on the basis that we should be doing a whole range of other things. They do not pinpoint what those other things are; instead, they just come in here and generally criticise the bill. If you are going to criticise legislation then be specific and, more importantly, let the Australian people know where you stand. Do you stand on the side of unethical business operators, or do you stand on the side of hardworking Australians who have lost their money?

Darren Chester (Gippsland, National Party, Shadow Parliamentary Secretary for Roads and Regional Transport) Share this | Link to this | Hansard source

Mr Deputy Speaker, I rise on a point of order. The member for Makin is reflecting on 'you' and 'your' and I believe he should be directed to respect your position in this place.

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

The member will resume his seat. There is no point of order. The member for Makin will continue.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

Thank you, Mr Deputy Speaker. I know that you support this legislation. I certainly was not reflecting on you. I know your position on this legislation.

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

The member for Makin will resume his seat. There is no reflection on the chair. The chair is totally independent. In your speech you can relate what you believe, what you think and what you want to put to this place, but you cannot reflect on the chair.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

Thank you, Mr Deputy Speaker; I will certainly do that. The Corporations Amendment (Phoenixing and Other Measures) Bill 2012 introduces a process for ASIC to wind up abandoned companies without having to go through the courts, so that employees can in turn access the government's General Employee Entitlements and Redundancy Scheme. Presently, ASIC or an employee must apply to the courts in order to have a company wound up. That can be both costly and time consuming.

The bill also introduces a regulation creating a power to prescribe methods of publication of notices relating to events before, during and after the external administration of a company. In essence, the bill provides for the electronic publication of notices on the ASIC website. This will be a more efficient and cost-effective way of providing those notices. It is estimated that about $15 million in additional costs will be saved over the next four years through this process. Those savings will benefit creditors of failed companions because in most cases the notification costs would come from remaining assets of the failed companies.

The bill makes a range of miscellaneous, minor and technical amendments, including requiring insolvency practitioners appointed to a paid parental leave employer to inform the Department of Department of Families, Housing, Community Services and Indigenous Affairs of their appointment, regardless of whether FaHCSIA is a creditor of the company. The bill also provides ASIC with the power to appoint a liquidator to effect the winding up and determine the remuneration to be paid to the liquidator.

This bill implements an important aspect of the government's Protecting Workers' Entitlements package election commitment. For too long shonky businesspeople have hidden behind company structures to rip off suppliers, subcontractors and workers of money rightfully owed to them. They do this by having their company liquidated in order to avoid their financial obligations. All too often they recommence the very same business under a new company structure, often managing to transfer assets from the liquidated company into the new business—all the time without any personal loss to themselves. This is referred to as phoenixing. In the process other Australians lose their hard-earned wages, holiday pay, sick pay, superannuation and long service leave entitlements.

Other suppliers and contractors are also being sent broke in the process because of unpaid work or goods that they have supplied. Over the years I have personally spoken to many subcontractors and many small business operators who in good faith dealt with operators of companies that subsequently went into liquidation, knowing that they were unable to pay their debts but still ordering services and work from other suppliers or subcontractors—knowing, when they ordered work or goods, that they were never going to pay for them. Small business operators would provide work in good faith and in turn be left owed tens of thousands of dollars. In some cases, the money owed to them that was never paid was such that it caused the small business operators or the contractors to go broke. It is one thing for a company to genuinely run into financial difficulties. It is another when the company directors know that they will never pay for the work or goods that they are ordering. I know that we have other provisions within our corporate laws to seek redress from those operators, but it is a matter that is of serious concern to me.

I come back to the issue of entitlements to workers—the wages, holiday pay, severance pay and the like. Even with the General Employee Entitlements and Redundancy Scheme, the GEERS, in place, it can be difficult for former employees of a failed company to be paid their rightful entitlements—particularly if poor records are kept or if the failed company deliberately seeks to avoid its responsibilities. Only last week I was contacted by a constituent in my electorate who came to me to raise his concerns about this very issue. Not only is this person owed money but it is clear that the company involved has deliberately sought to mismanage its affairs so that his ability to claim those funds will be extremely difficult. And, yes, I will do what I can to assist that person, but it is a classic case of the kind of activity that is going on right now and that I am sure is occurring right across the country. Furthermore, employees who do wish to take court action or redress to get their funds out of GEERS in most cases simply do not have the ability, the money or the know-how to go through the court process that is currently required to liquidate the company and then trigger the GEERS. For most people that is something that is not part of their daily work. It is not something that they want to engage in. Usually they are stressed out enough as it is before the process starts, and for them it is just all too hard—all too hard and, in turn, all too unfair.

Last year I was contacted by another constituent in my electorate who is owed thousands of dollars in unpaid superannuation, holiday pay and long service leave by a company that went into voluntary liquidation. This company has recommenced doing the same business, in the same locality, under a different name. The person told me that she lodged a claim with the General Employee Entitlements and Redundancy Scheme and that the directors of the liquidated company had continued their operations under a new business name. This is not an isolated incident, and it is not the only representation that I have had on this issue. I wrote to the Treasurer raising my concerns with the existing laws and with the laws relating to the personal obligations of the directors of failed companies. I thank the Parliamentary Secretary to the Treasurer, who is sitting at the table now, who responded to me on behalf of the Treasurer and provided a very detailed response to my representations to him.

This bill is another step in protecting the community from unscrupulous business operators. As I said at the outset, I am surprised that the opposition have decided not to support it. I am still to hear which specific provisions of this bill they do not support. Quite frankly, if they are not supporting the specific provisions that are in the bill, I have to ask: why not?

I also note that the bill was considered by the House of Representatives Standing Committee on Economics, with a recommendation that the bill be considered by this parliament. So the bill has been referred to the Standing Committee on Economics and their recommendation is that it comes back to this House for consideration. As I have said all along, this a bill that is a step in the right direction in bringing about fairness to people who have been unfairly treated by unscrupulous business operators. I commend the bill to the House.

Stuart Robert (Fadden, Liberal Party, Shadow Minister for Defence Science, Technology and Personnel) Share this | Link to this | Hansard source

Before I comment on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012, and thanks to the parliamentary secretary across the table, I rise firstly to acknowledge some new student leaders in my schools in Fadden. I believe it is important for the Commonwealth to take time to recognise the roles and responsibilities of young leaders as they represent the future of our nation. These leaders have been selected by their schools and, in some instances, by their peers in the hope that they will make a positive and lasting contribution to their schools and wider communities.

I regularly visit the schools whose leaders' names I will table today, thanks again to the minister, because I am regularly welcomed by members of the schools' leadership teams and enjoy the time afforded to me in getting to know them. I always find myself impressed by their self-confidence, their resilience, their courage and their commitment to their schools. They do us all proud and are testament to the support and encouragement that they undoubtedly receive from their school community and their parents.

Certainly, good leaders must have confidence and self-belief. Unless a leader can maintain a clear vision of where he or she wishes to go, others will not follow. It takes courage and belief in their own conviction.

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

Order! I understand how important leaders are, but we are debating a completely different bill here. There are ample opportunities in this place—in adjournment debates and at other times—to acknowledge those leaders. He should debate the bill before us.

Stuart Robert (Fadden, Liberal Party, Shadow Minister for Defence Science, Technology and Personnel) Share this | Link to this | Hansard source

Mr Deputy Speaker, I therefore seek leave to table the names of the Fadden school leaders.

Leave granted.

Thank you, Mr Deputy Speaker, for the honour you accorded me. It is important that we return to the substance of the bill. Phoenixing activity has been widely debated in the House. It is typically associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The directors then seek to place the initial company into administration or liquidation with no assets to pay entitlements to employees or, indeed, creditors, contractors or, heaven forbid, even the ATO. Meanwhile, those same directors seek to carry on their business using a new company structure.

It is important for all to know that the coalition is strongly opposed to any fraudulent behaviour that phoenix activity involves and supports all appropriate, sensible and considered measures to stamp out this practice. We recognise that phoenix activity causes substantial harm to workers and small businesses who are denied legitimate entitlements. If left unchecked, there is no question that it can erode the reputation of Australia's strong business community and reduce confidence in our world-class corporate regulatory framework. However, we are deeply concerned that the government's approach to this important public policy matter has been ad hoc, piecemeal, confusing and has not been targeted.

The bill before the House is meant to enhance the ability of ASIC to combat phoenix activity. It gives a range of new discretionary powers to place a company into liquidation, including powers in circumstances such as when a company is six months late in responding to a compliance notice; it has not lodged other documentation required by ASIC; ASIC has no reason to believe a company is carrying on a business and no objection to liquidation is received from directors; a review fee has not been paid within 12 months; or when 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 website.

However, despite repeated attempts from the government introducing legislation to target phoenix activity, I do not believe the government has yet got it right. Last year, the government included a series of different measures targeting some aspects of this behaviour 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 these bills, the House of Representatives Standing Committee on Economics made a unanimous and bipartisan recommendation that the government not proceed with those provisions. The committee specifically commented as follows:

David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

Mr Deputy Speaker, I have a point of order. As interesting as the committee's report in relation to those two other bills is, its deliberations do not relate to matters that are the subject of the bill that is being debated today.

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

The member for Fadden will continue.

Stuart Robert (Fadden, Liberal Party, Shadow Minister for Defence Science, Technology and Personnel) Share this | Link to this | Hansard source

The committee made a unanimous and bipartisan recommendation that the government not proceed with those provisions that detailed phoenixing, which have led to the substantive aspects of this bill. The committee specifically commented as follows:

… the committee notes 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 the provisions from the bill and has to provide any indication as to how it will actually tighten the provisions to better target phoenix activity as recommended by the committee. The latest provisions in the current bill remain problematic. The Australian Institute of Company Directors has expressed concern about the general thrust of the changes. It is critical of the fact that no attempt has been made to define phoenix activity in any of the bills the government is introducing to deal with the issue. Whilst it is not opposed to all aspects of the bill, the institute does feel that additional powers should be better targeted on those specific activities the government is seeking to eliminate.

The coalition remains concerned that the government, while attempting to regulate and target phoenix activity, has still not made any meaningful attempt to craft a definition of what constitutes that type of phoenix activity. It is fundamental to ensure that any fraudulent activity being targeted is clearly defined so that everyone knows exactly what the lay of the land is. A clear definition would protect legitimate companies and ensure they are not inadvertently caught in what could be perceived as some quite significant measures, with ASIC being able to unilaterally move to liquidate the company. You would think that giving such powers to ASIC would require a clear and precise definition of what those activities would be that could lead to a company being wound up. We note there are significant increases in ASIC's powers represented by the bill. As Australia's corporate regulator, ASIC has a rightful role to play in properly overseeing and enforcing existing legislation. Such rules and regulations need to be properly scrutinised by the parliament to ensure they are being applied in accordance with the original intent of the legislation. We remain concerned that the bill does not allow for appropriate parliamentary scrutiny of these new powers.

One of the major issues identified as contributing to the extent of phoenix activity is that regulators are apparently not fully utilising the existing powers available to them. Other issues that have been cited include a lack of prosecution, underresourced regulators, insufficient follow-up on complaints, and inadequate penalties provided to act as a deterrent. In this context, giving additional new powers to ASIC would appear to be putting the cart before the horse, if ASIC is not currently using its existing powers.

We also remain concerned that the government seems to be taking a further ad hoc approach to the targeting of fraudulent phoenix activity by introducing many pieces of related legislation in an uncoordinated manner, such as the current bill and the previous bills that were so heavily criticised by the House of Representatives Standing Committee on Economics. Those criticisms were unanimous and bipartisan. We strongly recommend the government cease the ad hoc and piecemeal approach, withdraw the current bill and instead engage in some meaningful consultation with stakeholders to address their legitimate concerns and to determine a comprehensive and coordinated legislative approach to this important public policy matter.

As a starting point, the government should consider the proposals paper on combating phoenix activity released in November 2009 by Nick Sherry, who was then the Assistant Treasurer—one of five Assistant Treasurers in the short history of this Labor government. Of the 11 proposals for combating phoenix activity in that proposals paper, none are reflected in this new ASIC power. Did you just decide, Parliamentary Secretary, that you would ignore Nick Sherry? Did you decide that, as an Assistant Treasurer, he was not worth listening to? But then again there have been five Assistant Treasurers, so I guess the point is axiomatic. But these 11 proposals may in fact be a good place to start, since it was your Assistant Treasurer who put them together, I assume with the backing of Finance and Treasury.

The coalition has a number of other concerns about the government's approach to phoenix activity, which include how effective previous regulatory efforts have been in combating this practice; the appropriateness of available penalties; and the lack of recognition by the government of the role and capacity of liquidators in tackling this type of activity.

Failing the government seeing sense and going back to the drawing board, the bill needs a thorough examination in the Senate Economics Legislation Committee. The coalition would also like to see an Economics References Committee inquiry to look beyond the government's piecemeal legislative effort. That inquiry should canvass all options for reforming the law surrounding phoenix activity and make recommendations to the parliament for a comprehensive and coherent legislative change.

David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I would like to thank all the members who have contributed to this debate on the Corporations Amendment (Phoenixing and Other Measures) Bill 2012, in particular those who have spoken on this side of the chamber with such passion about their determination to ensure that workers, in the event that their company fails and workers' entitlements are not available to be paid, have the opportunity to access the publicly available funds through the GEER Scheme.

There have been a number of contributions from those opposite. I am pleased that the member for North Sydney has joined us. The member for North Sydney led the opposition's offensive on this bill, and I have to say that he was pretty sloppy. You were pretty sloppy, Joe. He commenced his contribution with a number of quotes. He quoted Bob Baxt, a very distinguished individual who is the chairman of the Law Committee of the AICD, and Peter Strong, from COSBOA. These men are both very respected individuals. The difficulty was that the quotes he chose to selectively use were actually taken from evidence given by those two individuals to a parliamentary committee investigating two completely separate bills. The member for North Sydney, rather than confront the issues that are at the heart of this bill, came into this place either to mislead the House by engaging in debate about other matters or, through his own sloppiness, to engage in discussion about completely separate bills.

When it comes to the bill that is before the House, those on this side of the chamber have spoken—I think very passionately and forcefully—about the need to remedy an existing deficiency in the law. I would like to speak about some of the specific examples that have been brought to my attention by members of this place of workers in their electorates who have been, firstly, denied access to their entitlements and, secondly, denied access to the GEER Scheme, the publicly funded opportunity to ensure that people do get their workers' entitlements paid.

I will speak firstly about the example that was brought to my attention by the member for Eden-Monaro. He contacted me in relation to a car dealership in Cooma. It was deregistered at the end of 2008 without being put into liquidation. Workers were owed, in some cases, more than 10 years long service leave, redundancy payments and holiday pay. They could not access these payments through the government's GEER Scheme because the company has to be put into liquidation in order to trigger availability of funds in the GEER Scheme. That is precisely the difficulty that this bill is addressed at tackling. Many members who have contributed have made the point that one of the principal characteristics of phoenix activity is that directors abandon the company—they walk away and they leave the company without the assets necessary to fund the payment of workers' entitlements. In that situation, there are very few options are available to an employee, and that is the problem that this bill seeks to address. Employees in this car dealership in Cooma have been left without any capacity to get their entitlements. We want to ensure, by giving ASIC the power to administratively wind up the company, that those workers will have access to their entitlements through the GEER Scheme. It does not seem like a particularly controversial thing to be bringing forward, but, for whatever reason, those on the other side, in their relentless negativity, have come into this place and once again have said no—no to the protection of workers' entitlements and no to giving ASIC the power it needs to ensure that those workers' entitlements are facilitated.

I will mention another example. This one was brought to my attention by the member for New England. This was an exhaust and tyre company in the seat of New England. The owners of the company had closed the business without paying their workers their entitlements. Employees could not access their entitlements under the GEER Scheme because the company, once again, had not been put into liquidation. This is typical of those engaging in phoenix activity.

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

Why don't you change the GEER Scheme?

David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

The member opposite says, 'Why don't you change the GEER Scheme?' Well, he had 11½ years to try and do that, but there is a very good reason—

Mr Hockey interjecting—

Mrs Bronwyn Bishop interjecting—

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

Order! I ask the honourable members to direct their remarks through the chair.

David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

And to the member for North Sydney, who rightly claims that the Howard government introduced the GEER Scheme, which on the face of it is a very good scheme: we will make improvements to that scheme. But a major deficiency of that scheme, which remained uncorrected for the entire time they were in office, is this particular situation where the company lies dormant and abandoned.

The constant allegation made by those opposite is that this is going to strangle business with regulation and red tape. This will only impact on dodgy directors—

Mr Hockey interjecting—

those directors who have abandoned the company. If the member for North Sydney would like to introduce any example of a company that he believes to be an above-board, well-functioning and reasonable operation where the directors have abandoned that company, then I am happy to entertain that example. This is specifically directed to those instances where a company is not complying with its obligations under the Corporations Act. In addition to that, there are tests such as the public interest and, indeed, whether or not in ASIC's view the company is carrying on a business. These are specific instances.

For those opposite to come into this place and say that they are prepared to be complicit in the activities of these shonky directors by denying these workers access to the GEER Scheme is a slap in the face to working Australians, and it is in particular a slap in the face to those working Australians who have been left stranded by the shonky activities of directors who have chosen to walk away from their obligations, to walk away from their company and to leave those workers, through no fault of their own, without wages that have been earned and entitlements that have been accrued. It is a disgrace, and we intend to prosecute the case, whether it be in this place or in the Senate or in the community more generally, because it is unconscionable for those opposite to object to these particular proposals.

I will address some of the other criticisms that have been brought forward by those opposite. One of the principal arguments seems to be that this legislation does not address all aspects of phoenix activity. That is true, because phoenix activity is very complex, and legislative responses designed to attack phoenix activity need to be appropriately calibrated. Indeed, that is why we need to do that: to ensure that all of those good directors doing the right thing are not caught up by this activity. We will ensure that any future efforts to add to this measure to tackle phoenix activity will be approached in that considered way. But we will not accept the criticism that, because this bill only addresses one element of phoenix activity, that is a reason to oppose it.

It is not a reason to oppose it, because to oppose this bill, to say no—as the Leader of the Opposition says every day he comes into this place—is to say no to hardworking Australians who have been robbed of their entitlements by shonky directors who have chosen to abandon their company, leave it high and dry and leave those workers high and dry. This government will not do it. If the opposition want to come into this place and vote to say no to those people, we will shame them in full public view, because it is just not acceptable.

In relation to one of the other arguments that are made—that is, those opposite say that this involves no definition of 'phoenixing'—once again, phoenix activity is not something that has just occurred in our time in government; it has been occurring for a considerable period. If defining phoenix activity were so easy, I suggest that someone would have already done it. I suggest that it would have already been done. Just because something is difficult to define, some might even suggest incapable of definition—I am not so sure I would agree with that—does not mean that, where that conduct is robbing people of their entitlements, we as legislators should not intervene and act to ensure that those people get what they have worked for. These are entitlements and wages that they have earned. We want to make sure that they have access to them.

The other reason it is important that we give ASIC these powers—just to provide some further explanation—is that, at the moment, where these companies are left dormant because directors have abandoned the company, as I indicated earlier, the GEER Scheme only becomes available when the company goes into liquidation. At the moment, under the existing law, an employee could seek to go to court to wind up a company. But I would like to ask those members opposite—such as the member for North Sydney, who has been quite vocal on this issue—a question. If workers have turned up to work one day and found that the directors of their company have abandoned the company, they have not been paid their wages, they have not received their entitlements and there is not even any suggestion necessarily that there are any assets left in the company, do those opposite seriously suggest that a worker in that situation is going to go down and see a lawyer and engage a lawyer to commence proceedings, to go to court and wind up the company? Of course not. And that is precisely the difficulty that we currently have.

There are many people who have written to me—many members of this place have written to me—raising representations about situations in their electorates. We will not stand idly by; we will do something. Those who come in here and say no should be shamed for doing so.

The other argument that has been brought forward—

Mr Hockey interjecting—

The member for North Sydney waxed lyrical, with lots of rhetoric but no substance—it is just so typical: lots of rhetoric; no substance—when it came to the principal charge of imposing this additional regulatory burden. I would like to quote from those at Minter Ellison, lawyers engaged in this type of legal work, who might actually know a bit about this. In a briefing on this bill issued on 23 January 2012, they said it ‘contains some reasonable measures for facilitating the protection of workers’ entitlements, and these measures are unlikely to affect the position of the majority of directors’. Indeed, on the question of regulatory burden, aside from the obligation that relates to FaHCSIA and the paid parental leave provisions—that is not what the criticism is being levelled at—when it comes to the winding-up provisions, the bill does not contain any additional regulatory compliance requirements. In fact, the only time we will see these provisions come into effect is when directors and companies are not in compliance with existing regulation, appropriate regulation, that no-one in this debate is suggesting should be repealed. So it is an absolute furphy.

Those opposite, for whatever reason, want to hide behind this rhetorical notion—the rhetorical flourish of the member for North Sydney—that somehow this is imposing an additional regulatory burden. They are looking for an alibi to try to demonstrate, however feebly, why it is that they will come into this place and argue that workers who have been robbed of their entitlements should be denied access to a scheme. They introduced a scheme—they introduced GEERS. They say it is a good scheme. They say it is there to ensure that those who have been ripped off in their entitlements have access to them. But, rather than give access in this limited set of circumstances where the legislation is currently deficient, they come in here seeking an alibi—the alibi of additional regulatory burden—in order to hop into the corner of the shonky director who was not man enough to stand up and meet the obligations that they had incurred and who not only walked away but left their employees without access to the wages and entitlements they had worked so hard for in order to contribute.

I bring my contribution to a conclusion by addressing one final point, and that goes to the question of consultation on this bill. There have been some fairly outlandish statements made, particularly by the member for North Sydney, about what occurred before the House of Representatives Standing Committee on Economics. I do not pretend to understand exactly what occurred before the economics committee, because I am not a member of that committee, but I do have some grave concerns about his suggestion that somehow this decision was rammed through by the Labor members of that committee. It is not my understanding that that is the practice of that committee. Indeed, when the member for Parramatta—who the member for North Sydney sought to besmirch in this debate—gave a statement to this House indicating that the committee had discharged the bill from any further consideration, I would have thought that that would have been an appropriate occasion for those opposite to respond. The deputy chair of the committee always has the opportunity to be listed on the speakers list to get up in response, but the deputy chair of the committee did not do so. Mr Deputy Speaker, I would suggest to you that, far from this matter being rammed through by members of the committee from this side of the House, this was a case of those members of the committee from the other side of the House not having a problem with the bill—because, unlike the member for North Sydney and others, I suspect they might have even read it. (Time expired)

Peter Slipper (Speaker) Share this | Link to this | Hansard source

The question before the chair is that this bill be now read a second time.