Louise Pratt (WA, Australian Labor Party, Shadow Assistant Minister for Manufacturing) Share this | Hansard source

Today we're of course debating the very important legislation before us that combats illegal phoenixing, the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill. This is an issue that costs everyday Australians a great deal of money. There's a big cost to the Australian economy, but, when you drill down to an individual level, subcontractors, creditors and workers are out of pocket and, in many cases, unpaid. We know that this is a process where a company director transfers assets from one company to another, disposes of them or just has them disappear privately, but when these assets transfer from one company to another, usually a related entity, the original company can be left with debts and no assets when the liquidators come in and wind up the old company.

We see that contractors, employees and creditors aren't paid. We see that subbies take a significant hit, and this can mean lost wages and lost superannuation.

I note, for example, that the government some time ago put in place the Fair Entitlements Guarantee. That is an important initiative that has seen many workers' entitlements protected. However, it doesn't protect subcontractors, and it doesn't take the stress off subcontractors who have to pay their own workers when they've missed out on their own payment from a company that they've been contracted by. So the Fair Entitlements Guarantee is not a panacea to these kinds of issues, and it leaves a significant liability to the taxpayer, when we know that these assets and the assets that should be there to pay these entitlements and to pay subbies have been moved around.

We know that workers are forced to line up behind secured creditors, meaning that they're often unlikely to recover entitlements like superannuation, which aren't covered by the Fair Entitlements Guarantee. As other speakers have highlighted, it also means that, with building faults and abandoned contracts—where someone's been contracted for a new build or a new kitchen—consumers are left considerably out of pocket. Consumers can move into a new building and find that there is no way for building faults to be addressed. This has happened to many people that I know—tenants in a building where the landlord is struggling to fix the issues with the building because the builder of that building has gone broke. This leaves tenants and landlords and owners of the building really in a very difficult place, because, if a building needs major reparations or reform to meet building standards, then they've got nowhere to go. That's despite the fact that the company which delivered that product that really didn't meet standards has moved their assets elsewhere and is still building homes or doing other activities that repeat the cycle over and over again.

I'm going to touch on ACTU's submission to the inquiry into this bill. It really brought home the impact of phoenixing on workers. Sadly, the clothing, textile and footwear industry in Australia does see these kinds of issues arise. The secretary within the CFMEU said: 'It was the hardest part of my job when I had to walk out of creditors' meetings and address groups of textile workers and tell them there's nothing left, "Your wages and superannuation are gone." These are working-class people, sometimes people who'd worked 10 years or more on low award wages, and I had to tell them that there's no money.' This is a significant issue in the clothing, textile and footwear industry and was raised by the union in Australia.

I want to say that the capacity of companies to have this kind of bad behaviour, where they've left behind their own workers, also undermines the competitiveness of Australian-made companies in the clothing and textile industry who do the right thing.

It's an incredibly negative thing to see this kind of phoenixing take place in Australia's clothing and textile industry—where they will pick up again and create new products and continue to underpay workers in the industry.

I'm delighted to say today—and it's just by coincidence, though I do wear a lot of it—that the dress I'm wearing, which I think is fantastic, is made by Cue. Cue is one of those companies that has high ethical standards in their wages and labour in Australia and does in fact employ Australians and has been recognised for their labour sustainability. The job of companies like Cue is made much harder when there are phoenixing activities, particularly activities where companies don't pay their tax and don't pay the superannuation of their staff. They make significant savings but they take the profits of that, they cut it out of the company and they move it into a phoenix company. This is not fair on other companies that do the right thing. It's the same in building. It's the same in clothing and textiles. These are important issues that really must be addressed.

It's one of the reasons that Labor has put forward the need for all company directors to have a number that is connected to their personal identity irrespective of whether they turn up in a new company at a later date. People really do need transparency around these issues so that other subcontractors and workers can see that it's the same dodgy people behind these practices.

As evidence before the inquiry showed, PricewaterhouseCoopers suggested that the cost to the Australian economy of illegal phoenixing could be more than some $3 billion a year. It's clear in that sense that it costs all of us. We're very proud in the Labor Party that we think these are key issues and that we've been on the forefront of driving for action on them. We want to see company directors that wind up these companies, leaving workers, tradies and suppliers up the creek without a paddle, held to account.

We believe the government has been very slow in coming to the table on these issues and has been sitting on its hands for too long. We are very supportive of the legislation that is before us, but we very firmly believe that it doesn't go far enough. Like I said before, we want to see a commitment to act on director identification numbers. Directors should have to provide 100 points of ID. Give the regulators the information that they need to properly tackle this problem at its very heart. Today it takes less ID to start a company than it does to open a bank account.

There are a great many stakeholders that support this reform: the Institute of Company Directors, the Small Business and Family Enterprise Ombudsman, the Productivity Commission, the Tax Justice Network, trade unions, the Australian Restructuring Insolvency and Turnaround Association and the Australian Chamber of Commerce and Industry. The government has in the past refused to vote for this policy. We are appalled that the government would deem it to be appropriate that it is possible for these shonky operators to continue to be able to rip off small businesses and their employees.

Some have also suggested that the bill in its current form won't be a silver bullet that solves the problem of illegal phoenixing activity. Indeed, Australia's foremost expert on phoenixing, Professor Helen Anderson of the Melbourne Law School, highlighted these issues to the Senate inquiry: ASIC already has the powers to prosecute these issues, but the key issue has been about the resources that ASIC has and the need to amend the existing legislative framework, not to introduce new legislation and the new framework that we see here.

The Australian Restructuring Insolvency and Turnaround Association highlighted that existing legislation contains the tools to address illegal activity. Chartered Accountants Australia and New Zealand also expressed this view. They expressed very clearly that it could be better addressed via amendments to existing law rather than the new legislation we have before us. They said:

… we support reforms to combat illegal phoenix activity, however we consider that this could have been achieved via amendments to existing laws rather than new, highly complex legislation.

It is, in that sense, a shame to see this legislation described as 'highly complex' at the same time as we have existing regimes sitting alongside it. It makes it very clear that the government should have given some attention to amending the existing regime. This was a very common theme. We in the Labor Party acknowledge these significant concerns. We believe it's appropriate to assess whether these reforms are working, and we will be moving an amendment to this end within the legislation before us.

The lack of focus on enforcement that currently exists and that this legislation doesn't fix means that there is very little deterrent effect on those operators who engage in this kind of activity. We want to see the resourcing of ASIC improved. They have limited resources to address these issues and to go after all the different kinds of misconduct reports that they receive. The ACTU highlighted this before the Senate committee. They said:

Whilst the proposed amendments may make ASIC's task in prosecuting illegal phoenixing behaviour easier, they will be of little value without a significant increase in ASIC's resources and willingness to deploy them forcefully.

So, with these scarce resources to prosecute its current remit, it is very difficult to see how ASIC will be able to fully utilise its new powers. We want to see the government focus on resourcing the corporate watchdog so that it is able to work through prolonged and difficult cases without draining its resources.

So we on this side of the chamber, in the Labor Party, are looking forward to making sure that these reforms are resourced and that the instruments are properly implemented by this government to ensure corporate integrity and good behaviour in our country. It is simply not right that creditors, contractors, tradies and workers are the victims of illegal phoenixing in this nation. We must act to protect them from dodgy operators.