Peta Murphy (Dunkley, Australian Labor Party) Share this | Link to this | Hansard source

When I left off in this debate on the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020, I was talking about the number of insolvency events that occur in the construction sector. As someone who represents an electorate with a large number of trades men and women who are sole traders, subcontractors and family businesses, I was very proud of the policy that Labor took to the last election about a tradie pay guarantee. It's really about security of payments, ensuring that those subcontracting tradespeople in the construction industry get paid.

We know that there have been a number of collapses of larger businesses which operate in the construction industry that have left those down the supply chain out of pocket. Labor's tradie-pay-guarantee framework which we took to the last election would implement the best-practice recommendations of the Murray review of security-of-payment laws, accepting three key policy considerations: we need to preserve the cash flow of the party that has carried out construction work or provided related goods and services by enshrining their right to receive prompt payment of progress claims; we need to provide an adjudication process that ensures that disputed payment claims are quickly and efficiently determined so that prompt payments can be made; and we need to protect payments made in respect of progress claims so that parties who receive the payment hold the payment for those to whom it is rightfully due, through a cascading statutory trust.

Labor proposed a federal security-of-payments framework which would be achieved either by harmonisation across the states or by states referring their constitutional powers to the Commonwealth to implement a national security-of-payments framework. A federal government can start that process by putting in place statutory trusts for construction projects which have significant Commonwealth funding. I urge the current government to go back to the Murray review, to look at those policy considerations and to implement those sorts of policies. That would go a very long way towards giving security to trades men and women who need it, particularly now, to pay their rent, to pay their mortgages and to look after their families.

I want to return briefly to the substance of this bill. I note, as my colleagues have, that this bill was presented to this House with a lack of consultation with small business groups and with a lack of consultation with insolvency experts and accounting bodies. There was a release of legislation and regulations for consultation: four days—four working days—and a weekend to absorb and critique complex and very important reforms. That's not sufficient. This is an important reform, as the Treasurer has said. It is a reform that Labor would like to support, but there are concerns that need to be addressed: How is a cash strapped small business is going to pay for restructuring? What protections do suppliers have? How are stakeholders going to know about a company being in a restructuring plan when the company doesn't have to disclose it and the ASIC registers aren't being updated properly? What impacts will this have on credit availability for small businesses? And, with a new class of liquidator created but lesser education and experience requirements, how will creditors and stakeholders be protected?

These measures may well help struggling businesses in the short term—and that's why my colleagues and I won't stand against them—but we do need to remind this government that it will be held to account, and we do need to make sure that any adverse effects of these reforms are addressed. We know that even legislation put into place with the best intention can have unintended adverse consequences, either in the design or in the implementation.

One example, which is being experienced by a small business called Sk8house, in my electorate, is to do with the JobSeeker wage subsidy program. Sk8house applied for JobSeeker in April and were successful. They received a necessary and very important $60,000 worth of JobSeeker payments, only to then be told by the Australian tax office in September that they were reconsidered as not eligible and now owe a debt of $60,000. It's not hard to imagine what that has done on an emotional and psychological—let alone financial—level to a relatively new small business and to the people that run it and their four employees, who have been struggling to keep that business going during the global pandemic. They've been able to open, now that restrictions have been lifted. Roller derby has started up again. It's part of the state program of This Girl Can, to support girls and women to get involved in exercise—not necessarily mainstream exercise. Bernadine and her partner and the people who work at Sk8house are still so anxious about whether their application to the ATO to review that decision, which they say is based on an erroneous assessment of whether they employed staff, will be successful.

When we bring in these measures that are intended to help small businesses, it's really important that they don't have unintended consequences which can make life even worse. This legislation will start on 1 January—provided a couple of safeguards are put in place to stop any unforeseen consequences, because it has been rushed. Labor has moved amendments seeking a review of the operation of the reforms in practice to identify adverse consequences on small businesses and to propose legislative solutions. We want a sunset clause, so if solutions developed by the review are not implemented the measures will expire after two years. I say to the chamber: these are simple, sensible safeguards which would ensure these changes by the government do what they are supposed to do: help small business. Because we know, now more than ever, that our local small businesses need our help.

I want to finish my contribution by reminding everyone to shop local. Over these summer holidays, when many people can't travel for their holidays, as they usually do, take the choice to holiday at home—particularly in my magnificent electorate of Dunkley. We encourage people to visit us. Holiday on the beach. Experience our little sliver of Australian paradise. Support our local boutiques, cafes and restaurants, the new beer hall on Playne Street, Dainton Brewery and That Spirited Lot—I can personally attest to the quality of their gin. Go to Mount Eliza Village—experience the whole world in a small village, with all of the different goods that are on sale. Make sure you go to Langwarrin and go through the flora and fauna park and see just what a magnificent place Dunkley is. Shop local, support our local businesses, and come and visit Dunkley.

James Stevens (Sturt, Liberal Party) Share this | Link to this | Hansard source

It's my pleasure to rise in support of the second reading of the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020. It is, in many ways, an important piece of deregulation for the business sector. I hope to see us undertaking a lot more similar types of reform through this chamber, moving away from the one-size-fits-all approach to putting burdens on businesses and, equally, in this case, the pressures of the rigidity of insolvency laws that apply to all businesses in our economy, regardless of their size. This is something that strikes me as an opportunity to look at other ways in which we regulate the corporate sector, absolutely keeping important measures, metrics and laws in place for big business, but looking for ways to reduce burdens on the smaller businesses where, frankly, the burdens lead to pressures that can ultimately end up, ironically, with the business having to confront the challenge that this legislation is seeking to deal with, which is facing insolvency.

We all know that about one-third of small businesses fail in their first year and 70 per cent in their first three years. Frankly, 'failure' isn't a fair term. I think if anyone had established a tourism business about six months ago and at this stage found themselves in difficult times, it wouldn't be because they failed; it would be because something outside their control came along this year, through the COVID pandemic. You can reasonably expect, with many of the businesses that fail earlier on, that it is not because the person hasn't put in the effort, hasn't had a good idea, hasn't put their heart and soul into establishing that business or hasn't had an excellent business plan. But, of course, when you put your own money on the line or put your own capital out there, you take a risk. You move away from being an employee, with the job security that entails, to put it on the line to start a business. There is enormous risk, and a lot of people can find themselves in distressed circumstances and difficult circumstances.

This bill creates an opportunity for smaller businesses not to have to immediately be thrown into the rigidity, the expense and the pressure of the existing insolvency framework in our economy which is designed to cover everyone from small businesses—those for which this legislation will alleviate that pressure—right up to enormous listed companies. This is not about the Enrons; this is about the small businesses who are having a go and are in some difficult financial times and, under the current prescriptions of our insolvency framework, are required to do certain things which are, frankly, disproportionately expensive and may prematurely end a business that had a chance of succeeding without giving them the chance to trade their way out of a difficult period of time.

In my career, I've been involved with a lot of start-up businesses and a lot of business plans. When someone is planning their business and doing their business plan, cash flow and budgets et cetera so that they know how much money they can invest in their business, they do a stress test early on of all of their assumptions about what their expenses are going to be and about what is a very conservative, likely revenue and cash flow. It has struck me that then, when they ultimately decide to go to their bank and borrow money for their businesses, they always try and make that number as small as possible. Understandably, a lot of start-up businesses and even existing businesses have, in their culture and nature, a desire to borrow the least amount of money possible, particularly from a bank. We could have another debate at another time about banks and their relationship with small businesses and their preparedness to cut small business some slack and cut them a break at times. Certainly, most people, when they're establishing a business, want to borrow as little money as possible. That usually means that it doesn't take much of a challenge to come along which you didn't plan for or expect for you to find yourself in financially distressing times. That doesn't mean that the business is doomed to fail, that your idea wasn't a good one or that the business should be immediately wound up—quite the opposite. You've had a challenge come along. You can trade through it. You can get your way out of it, but you need protection from a framework that keeps your creditors in a position where you have the power, for a short period of time in that equation, to try to trade yourself out of the situation that you've gotten yourself into, that's probably in no way your own fault. And it's exactly because of the COVID challenges we've had this year that this type of legislative reform has seen the light of day. We see it has merit, because we do need to be remembering that businesses certainly confront challenges that are normal. They also have challenges that are abnormal. So surely our first principle needs to be: we want to do everything we can to help businesses have the best chance possible to succeed. The measures in this legislation do exactly that.

It has been mentioned in some of the contributions that we've reflected on the chapter 11 bankruptcy laws in the United States. This is not introducing that specific framework here, but it's certainly the basis of some of the measures in this bill. It obviously gives small businesses a differentiated way in which they can restructure themselves, compared to the big corporates. The big winners in insolvency are always the lawyers and the accountants and the services firms; they never lose money in these processes. It's a bit like divorce lawyers: they're the only ones you can absolutely guarantee are going to make a profit out of the process. This legislation and this reform ensures that small businesses—those where their debts are under a million dollars, which is a comparatively low figure; those that are employing fewer than 20 people—get the best chance of keeping their heads above water through a short-term difficult period of time so that they, in turn, can trade their way out of that short-term financial distress. It gives them the best chance for their business succeeding and thriving into the future.

My hope is that there will be a very large cohort of businesses, and their commensurate workforces, that ordinarily, under the old regime that we're seeking to replace with this legislation, would go into the insolvency and liquidation process much sooner can, by giving them that extra leeway, avoid that and go on to thrive and contribute significantly to the Australian economy. That's the hope. I've got a lot of confidence, based on the changes we are making, that a lot of good will come from this. I commend the Treasurer and the government for putting it forward, and I commend the bill to the House.

Brendan O'Connor (Gorton, Australian Labor Party, Shadow Minister for Employment and Industry) Share this | Link to this | Hansard source

I rise to speak to the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020, and support the amendment moved by my colleague the member for Whitlam. The intention of the bill is to help small businesses that are in some financial trouble or under stress, and I would like to talk to that in the bill.

Of course, this government, which likes to boast its support for small business, has not always covered itself in glory when it comes to supporting small business in reality. It was this government and this Treasurer that forgot about sole traders when introducing support in our economy in the name of JobKeeper. It was this government and this Treasurer who failed to support small businesses sufficiently when they reduced JobKeeper too early in a recession, where recovering businesses needed the support of this government. And yet the decision of the Prime Minister and the Treasurer of this government to cut JobKeeper, and to abolish it by March, will indeed precipitate the collapse of many small businesses. That's why Labor has been resolute in its view that Australians need more support at this time, because of the economic situation we find ourselves in. We are in no way content with the situation, but, unfortunately, I do anticipate that there will be many small businesses that won't survive next year, won't even survive this financial year, because of the premature withdrawal of a wage subsidy.

What is really essential to understand, and I don't think the government initially did understand this, is that JobKeeper is there to support the businesses and the workforce. We know that they didn't understand that, because in March this year they were not going to have a wage subsidy. In fact, when asked by the Labor opposition whether or not they would be introducing a wage subsidy, the Prime Minister, in this place, at that dispatch box, said: 'There is no need for a wage subsidy. There is no need for JobKeeper.' So, effectively, we closed the parliament—and it was to be closed for five months—without having a wage subsidy. Of course, they had to return to parliament within two weeks and introduce that subsidy. We welcome that. We welcome the change of heart and mind of the Prime Minister, but we do think that the government is again failing to support small businesses sufficiently by prematurely cutting the subsidy. The JobMaker policy that is to take over from JobKeeper won't be sufficient, because you can only get support under JobMaker if you're adding to your headcount, and these businesses that rely on JobKeeper will not be able to add to their headcount and, therefore, will not get one cent of support from the government when they lose JobKeeper in March.

With respect to the substance of this bill, just over two months ago the Treasurer and the Assistant Treasurer announced what they called the US chapter 11 style insolvency reforms. While, at face value, the reforms in the bill before us have some elements in common with the chapter 11 debtor-in-possession model of insolvency, closer inspection has shown that this was another example of a government that is always there for the photo-op but not the follow-up. The government is framing this as a small business measure, but I think there are very valid reasons to question the extent of the claim, which I will detail shortly.

Of particular concern about how the government has approached these reforms is that the preliminary work done on this legislation was purely for that photo-op announcement and, of course, the media blitz that followed. Prior to the announcement, no small business group was consulted, and no insolvency experts or accounting bodies were consulted or engaged with by this government. And when the legislation regulations were released for consultation, as the member for Dunkley has just said, stakeholders were given just four working days and a weekend to absorb and critique the complex reforms in this intricate area of law. The only reason you would rush something like this is that you view transparency as optional and constructive criticism or stakeholder engagement as non-essential. It's the behaviour of a government that does not respect due process and wants to ram through permanent reforms under the guise of a once-in-a-century pandemic. It's the lack of transparency and lack of consideration of stakeholder feedback as well as the rushed nature of these reforms and the government's refusal to consider what unintended consequences may arise from making these permanent and complex changes on the run that Labor is concerned about.

In fact, Labor supports the overall policy objectives of the Corporations Amendment (Corporate Insolvency Reforms) Bill. We support the intent of this bill, and I want to put on the record our support for measures that, as the government claims, 'support small business' and 'reduce the costs of external administration for small businesses and the compliance burden for insolvency practitioners, helping more businesses remain viable and improving the returns to creditors and employees when the business is unviable'. And it is a reasonable proposition to put forward measures that 'create a debt restructuring process for eligible small companies, provide temporary relief for eligible companies seeking to enter the formal debt restructuring process and create a simplified liquidation process for a creditors' voluntary winding up of an insolvent company'. But let's look a bit more closely at the details.

First of all, a majority of small businesses are not eligible for these reforms. The measures in this bill are only for incorporated businesses; they are not for sole traders—the group in our economy that is often forgotten by this government—and not for partnerships, and they are not for family businesses structured in other non-incorporated ways. Let me say that again. The majority of small businesses cannot and therefore will not access these reforms. So, for the florist who is a sole trader, the tradie who works for themselves as a subcontractor and the food truck vendor who has seen their business obliterated due to the COVID-19 crisis, their best scenario is the status quo. They are not going to access these initiatives, if enacted.

For those people who are still owed money from the start of the process of accessing these insolvency measures, that isn't necessarily a problem in and of itself, but, at a time when your cash flow is weak or non-existent and you have to chase, by yourself, everything owed to you, this may push the insolvency issue further down the supply chain to these sole traders. Remember, when we're dealing with people who are under financial stress, we have to think of that company but also its creditors. And, when we are looking to put together these reforms, we have to consider: Are there unforeseen, unintended victims of these reforms? Will creditors be worse off? Will other small businesses—other unincorporated businesses—be worse off if we don't get these laws right?

I would suggest that, if we don't get them right, the answer is absolutely, 'Yes, there will be adverse consequences for others.' You have to wonder whether the government has fully considered the ramifications of these reforms and the impact on the cash flow of other non-incorporated, small businesses. How many more sole traders, partnerships and family business will be left with increasingly late or unpaid invoices? Will credible insolvency practitioners vacate the field and new less experienced advisers come in and provide less adequate advice? What flow-on effects from the reforms could result in an uptick of illegal phoenixing activities, and, as some experts have warned, what impacts will this have on the credit availability for small businesses? We already know that small business credit is extremely tight and that the government's failed SME loan guarantee program, which only saw five per cent of the promised $40 billion taken up, was rejected by the banks.

Labor has been inundated by concerned stakeholders highlighting the lack of clarity in the powers, duties and obligations of different parties in the restructuring process, concerns about inappropriate individuals potentially being qualified as restructuring practitioners and concerns about the scale of businesses potentially captured by the eligibility criteria. One of the more perplexing things that has arisen is that many of the issues related to this bill could have easily been considered in a methodical fashion pre COVID if the Assistant Treasurer had actually done his job. Specifically, I mean that, as part of the insolvency 'safe harbour' provisions that were passed three years ago, the minister was required to establish an independent review within two years of that legislation. The requirement exists under section 588HA of the Corporations Act. It was due to happen in September last year, and it has not happened. We have not seen any public evidence that this review has begun.

Among a litany of scandals that cloud the actions of this government, the commissioning of statutory review may not be as explosive as sports rorts, exports rorts or the Leppington Triangle land deal, but it does remind us that some people in this government think they are a law unto themselves. He hasn't done the review required of him under the Corporations Act. If you were to really characterise this government, one of the words that comes to my mind is 'lazy'. It is a very lazy government and doesn't even do what's required of it under law.

It isn't the intention of Labor to stop these measures that will help struggling businesses. We want the government to be held to account, to do its job and to do what is reasonable to address any adverse effects these reforms create. Labor will seek to amend the bill in a sensible way. First, we think there needs to be a sunset clause in the legislation—ideally, at the two-year mark of 31 December 2022. That's enough time for the measures to have been used and for any adverse consequences to be identified and any solutions to be developed, especially if the intention is to extend or make these reforms permanent. To assist in putting forward the evidence on these effects, a statutory review should be commissioned. Noting that the minister responsible for the last statutory review—the Assistant Treasurer—believes himself to be above the law, we need to urge their compliance. We need to demand their compliance. So, should the minister not fulfil his legal responsibility to start a statutory review by 31 December 2021—that is, after one year of operation—the sunset clause should kick in. That is the most feasible way for small businesses to have their voices heard. We need accountability and transparency and we need to ensure that the government is doing its job.

So, whilst we support the intentions of this bill, we know there are many small businesses under financial stress, much of which has been precipitated by government decisions to withdraw support at a time of a recession. You will know, Deputy Speaker Mr Mitchell, in your electorate when JobKeeper goes unfortunately so too will jobs and many small businesses. It doesn't have to happen. It's a wilful decision of the government to abandon small businesses across Australia by the premature withdrawal of JobKeeper.

Whilst these reforms may well do what they're intended to do, there's been little consultation and very little engagement. We have a minister who is derelict in his duties not to comply with statutory reviews in other legislation and, therefore, we need to compel him and the government to do the right thing here. We ask the House to support the amendment, which I think will provide greater encouragement, and demand the government do its job properly.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Financial Services) Share this | Link to this | Hansard source

Many Australian small businesses in particular have had the year from hell. We entered the year on the back of a devastating summer associated with bushfires across the country. Many of those fires destroyed many small businesses throughout Australia and left a lot of them in a very precarious financial position. Then, just as many of those small businesses were starting to get back on their feet, we were, of course, hit with COVID-19, which unfortunately resulted in the closure of many small businesses but also in many Australians losing their jobs in these small businesses.

There's been very, very little support that this government has instituted as a result of the recent budget that directly assists small businesses. Many of the programs that the government put in place in the budget simply miss the mark. I'm talking about some of the wage subsidies, particularly those that offer nothing for older workers, which is the group of Australians who really do need support at this point in time.

The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 is an attempt by the government to liberalise insolvency laws and implement some significant changes to the Australian insolvency framework, aimed at reducing the cost of external administration for small businesses and allowing more small businesses to remain viable. While Labor supports the intent of this bill, and we certainly will see it pass through this place, there is more that could be done. This really is a missed opportunity, particularly given the fact that the government didn't really consult with industry, particularly the small business industry, about the effects of these reforms before they were brought to parliament.

The key features of the bill are the implementation of a new debt restructuring process for small incorporated companies and a new streamlined liquidation pathway for small incorporated companies. The new debt restructuring process provides a debtor-in-possession model, which will allow small business owners to remain in control of their businesses while implementing a restructuring plan that's been agreed by their creditors. The plans will be developed in conjunction with a new category of independent small business restructuring practitioners.

Many have described these reforms and these changes as similar to the United States' system of chapter 11 bankruptcy. Although there are some similarities, I think that there's a fundamental difference between the operation of those two systems.

The government also says that it's introduced safeguards to prevent the process from being used for corporate phoenixing. We all know what phoenixing is. It's an insidious process of particular companies, that owe money to creditors or people they employ, sending the company broke so that the company dissolves. The owners of that company then simply go, because we have limited liability through our corporate structure, and establish another company under another name and begin trading once again, leaving the creditors and many of their employees in the lurch. There is nothing they can do, because our corporate laws don't allow that piercing of the corporate veil to get at the individual who is running the organisation—or, where they do, they make it very difficult for organisations to chase that process.

The practice of phoenixing costs the Australian economy about $5 billion a year. It has been a big problem for the Australian economy. The government has listened to what Labor proposed at previous elections around director identification numbers so we can chase directors who owe creditors and leave employees with unpaid entitlements into the future. It's pleasing that the government adopted that reform put forward by Labor in the parliament.

This bill also introduces a new simplified liquidation pathway for small businesses designed to reduce the cost of winding up businesses that will not survive. But the fact is that the legislation won't assist many small businesses that need help. The reason this legislation doesn't assist many of those small businesses—and it is remarkable that the government doesn't know and understand this—is that most small businesses in Australia are not incorporated entities. They are not bodies that come under the remit of the Corporations Act. They are sole traders and partnerships. They are the Australians who really do put it all on the line when they establish a small business and risk many of their personal assets to establish those businesses. They are given no relief and no support by these changes, because they are not corporate entities, to which this reform applies. So most Australian small businesses, sole traders and partnerships won't benefit from these amendments to the Corporations Act to make restructuring of their debts easier.

Coupled with that, the problem that many of these sole traders have, particularly those who are operating as tradies in the construction industry—I have spoken to a lot of them in the electorate I represent and they often talk about issues associated with phoenixing and not being able to chase people who owe them money—is late payment of the bills they have with organisations that have done work for them or creditors or organisations that they have done work for. This is a huge issue, particularly in the construction industry and particularly in private enterprise. Sole traders, the many Australians who put their personal assets on the line, are really doing it tough, particularly on the back of the bushfires and COVID. They are basically being ignored by the government through the changes here to this particular element of the Corporations Act. They won't benefit from these changes that make the restructuring of debt easier.

Changes to bankruptcy processes are complex and require extensive consultation. So it's concerning that industry leaders have already declared that the Morrison government's consultation around this was dramatically inadequate. Many of those concerns were raised by stakeholders in the consultations that Labor did with them in determining our position on this bill, including the Australian Restructuring Insolvency and Turnaround Association, the major accounting peak bodies, the banks and the Australian Chamber of Commerce and Industry. The consultation process for this legislation has been extremely truncated considering the scale of the changes proposed. Stakeholders had only five days to make submissions on the exposure draft of the bill, and those submissions are yet to be published. And much of the detail of the bill, like a lot of the things that are being done by the government at the moment, will be contained in regulations rather than in the substance of the bill.

So the consultation process has basically been messed up, as usual. It has been extremely brief, particularly considering the scale of what's proposed here. Labor wants to see sensible reform to insolvency laws, but we want to make sure that they hit the mark, that they do the right thing by small businesses throughout this country and provide them with the support and the structure they need to succeed into the future. We've seen time and time again with this government, particularly the Treasurer, rushed-through, ill-considered legislation without adequate consultation or consideration in the drafting of the legislation. We've even seen instances where the government's had to come back and correct some of those inconsistencies and mistakes they've made in that legislation because they've had those problems with rushing through that legislation.

That's also why Labor will be moving amendments to the bill, to ensure that a rigorous review process and a sunset clause is in place for this legislation. That's not because we disagree with the idea of a streamlined insolvency and restructuring process but because we know the stakes are so high if we get this wrong. If we get this legislation wrong and it doesn't act as intended, the stakes are extremely high for many Australians who put their savings and their personal assets on the line to establish small businesses, particularly when they get into those difficult circumstances. A number of economic commentators—the RBA, Treasury—are forecasting that there will be an uptick in insolvencies and the closure of small businesses in particular on the back of the COVID-19 pandemic throughout the country, particularly when a lot of the government support is scheduled to be withdrawn at the end of March next year. We all know that the economy won't be recovered by then. Unemployment is forecast to continue rising throughout 2021, so we know the economy won't have recovered. Yet much of the support will be withdrawn, and unfortunately we're probably going to see an uptick in the number of insolvencies and we're going to see small businesses doing it tough throughout the country.

That's why Labor wants to make sure we get this process right and that it's not rushed. Our amendments will ensure that these very significant changes to the Corporations Act are appropriately reviewed and considered before being made permanent. It's crucial that distressed businesses have access to the right processes and structures necessary to reboot their businesses or wind them up in an operation that is orderly and fair. Indeed, many of those who have the most to lose—as we've seen so many times when restructuring or insolvency goes wrong, it's small businesses and subcontractors who are most affected—end up holding those unpaid invoices. It's not fair to many of those smaller businesses who don't have the financial resources of many big businesses to be able to chase up some of those unpaid invoices as creditors. For an ordinary Australian tradie who works as a subcontractor for a larger business, a poorly run insolvency process can lead to disaster for them personally, particularly if it's a tradie who is doing the principal amount of work for a larger contractor and is employing apprentices, trainees and other employees. For them, there's a lot at stake, particularly if 80 to 90 per cent of their work is with the one larger business.

So, it's important that we get these reforms right. If things go wrong, sole traders may be left struggling to meet payments on their house or to put food on the table for their family. Too many small businesses won't survive as a result of the Morrison government's 'snapback'. Streamlining the process for small businesses is something Labor supports, but we want to see that it's done properly. That's why we're insisting on this review process taking place, and on the sunset provision.

This government has a very poor record when it comes to delivering for small businesses and delivering support for sole traders and partnerships in particular, with only $1.8 billion of the $40 billion in small to medium enterprise loan guarantees having been delivered and the repeated failures to fix the payment times for SMEs throughout this country. I mentioned earlier how important that particular issue is to many small to medium businesses, particularly those operating as independent contractors and as sole traders.

It's clear that the Morrison government still hasn't done enough to support small businesses. It's clear that it hasn't done enough to consult with small businesses and ask them about what would assist them in the running of their businesses and a proper process to ensure they get the support that they need around insolvency to either continue to try to trade out of it or wind up in an orderly manner. Australians deserve a plan from the Morrison government that promotes growth and protects jobs. Support for small business is going to be crucial in that promotion of growth and in that protection of jobs. That's why Labor are insisting that we can make improvements to this bill to ensure that small businesses get the support that they deserve and that employees maintain their jobs.

Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

It's a pleasure to follow my friend and colleague the member for Kingsford Smith, who articulated the concerns that Labor has over the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020. It is a fact in Australia that illegal phoenixing is a scourge on the community. One story that struck me particularly was from a constituent by the name of Megan, who told me the tale of when she was seven years old and her dad lost his job. The factory where he was working closed, his full-time job vanished and he got no pay-out. Megan said she really liked it at the time. He was home a lot. He helped her organise her toys and they would walk to school every day. It was only afterwards that she realised that he'd been the victim of a phoenix director who had shut down the firm and stolen the employees' entitlements and that the reason he was walking Megan to school every day was that the family couldn't afford the petrol.

Daniel O'Connell took on a contract to do some plumbing work in a caravan park in regional Victoria. He was commissioned to do the work by a firm called Global Contracting. Eventually, Global Contracting admitted it wasn't going to pay him. He was left $200,000 out of pocket and just one of 300 creditors left behind when Global Contracting collapsed with $8 million of debt.

A phoenix is a magical thing. It's a bird reborn from ashes. But there's nothing magical about dodgy phoenix activity. According to a PwC report, it costs the economy some $5 billion a year. That $5 billion breaks down to $3.2 billion in unpaid bills, $300 million in unpaid employee entitlements and $1.7 billion in unpaid taxes and compliance costs. Tradies on the Gold Coast and in Melbourne, Canberra, Sydney and Western Australia have talked with me about the problems that illegal, dodgy phoenix activity has caused for them.

At the start of the year, the government finally, after many years of Labor and business groups calling on them to act, put through a bill which ensured that we had a director identification number. That dealt with the problem that previously it had been easier to become a company director in Australia than to open a bank account. The 100-point ID wasn't required to become a director. The problem was illustrated by the fact that one Liberal backbencher—I won't name him—was on the director register three different times. Let's put that down to inadvertence rather than malice. It illustrates the problem. If you can be on the director registry three times, then you don't have a system that is dealing directly with the problem. It was a variety of organisations—the Australian Institute of Company Directors, the Australian Small Business and Family Enterprise Ombudsman, the Productivity Commission, the Tax Justice Network, the Australian Chamber of Commerce and Industry, Master Builders Australia, the Australian Council of Trade Unions, the Australian Restructuring Insolvency and Turnaround Association and the Phoenix Project at Monash and Melbourne universities—who were calling for a director identification number to be put in place.

The government finally passed that bill, but it did so in a classically ham-fisted way. The Leader of the Opposition has spoken about the problem that this government has—all announcements and no delivery. This was just another illustration of that problem. Rather than implement the director identification number, supported by groups across the political spectrum and fairly straightforward in its implementation, and do it swiftly, the government chose instead to attach it to a much more complicated project: the rationalisation of some 30 different government business registers. The result is that the director identification number is going to take years rather than months, and the Australian economy will suffer the cost, suffer the $5 billion a year cost that illegal phoenixing activity imposes.

There are other ways of cracking down on dodgy phoenix directors, many of them outlined in that important Monash and Melbourne universities' report that I mentioned before. One is the implementation of cascading contracts for large construction projects. At the last election, Labor said that we would, were we elected, establish a requirement for large Commonwealth construction projects to have project bank accounts that use cascading statutory trusts, ensuring that if you do the work you get paid, that it wouldn't matter how far down the supply chain you were.

Again, this is not an ideological matter; it's a recommendation of former builder John Murray and his Murray inquiry of 2016. It's a recommendation of a Senate inquiry chaired by Senator Doug Cameron—probably not an ideological bedfellow of John Murray's, but somebody who understood the value of statutory trusts. Labor had said at the last election that we would not only put that system in place for large Commonwealth contracts but we would work with states and territories to look at how to do it with their contracts and, then, look at the potential to do that with large commercial contracts. The aim is simple: if you do the work you should get paid.

We said we'd create a $7 million tradie litigation fund to make sure that the Australian Securities and Investments Commission had the ability to run difficult court cases without draining their resources, to go after dodgy directors and make sure that they were held to account for activity that is hurting honest businesses. This is not just a matter of employers versus workers; this is also a matter of bad employers causing problems for high-quality employers right across the sector, eroding the bedrock of trust that is so critical to commercial relationships.

In this bill before the House today, Labor is concerned about the issue of phoenixing and that an inept approach to phoenixing could well see more problems than it solves. We're concerned that bad insolvency legislation could lead to more illegal phoenixing, higher credit costs for small-business creditors left with unpaid invoices and reduced credit availability for small businesses and smaller small-business tax returns. There's a lack of clarity in the powers, duties and obligations of different parties in the restructuring process in the bill before the House. We have concerns about inappropriate individuals potentially being qualified as restructuring practitioners and about the scale of businesses potentially captured by the eligibility criteria. These concerns have been raised by thoughtful stakeholders, including the Australian Restructuring Insolvency and Turnaround Association, major accountancy peak bodies, banks and the Australian Chamber of Commerce and Industry. The consultation process was a mere five days, and the exposure draft and those submissions are yet to be published.

Much of the detail of the bill isn't before the House and is said to be contained in regulations. So there's a real concern on this side of the House that many of those technical issues raised by stakeholders won't be adequately addressed by the government. We're foreshadowing a move to create a sunset clause for the legislation and require a statutory review to be completed before the legislation is automatically repealed. That's a position that's supported by stakeholders and the major accountancy peak bodies. It recognises the importance of ensuring that we have the balance right when it comes to insolvency, and that care is taken—that people like Megan's dad and people such as Daniel O'Connell aren't hurt by an increased prevalence of dodgy phoenixing. Labor foreshadows those amendments, and we intend to pursue the issue of dodgy phoenixing in the interests of all Australians.

Llew O'Brien (Wide Bay, National Party) Share this | Link to this | Hansard source

Order! The debate is interrupted in accordance with standing order 43. The debate may be resumed at a later hour and the member will have leave to continue speaking.