Senate debates

Wednesday, 5 February 2020

Bills

Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019; Second Reading

11:47 am

Photo of Catryna BilykCatryna Bilyk (Tasmania, Australian Labor Party) Share this | Hansard source

Labor welcomes the government's legislation to combat illegal phoenixing, the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019. We have been calling for action on this issue for some time, and we're pleased that the government is finally coming forward with a bill that will strengthen the powers of regulators.

The practice of phoenixing involves stripping the assets of a company to avoid paying debts. The assets are then transferred to a new company which continues the same business activity, usually under a new name, while the creditors of the old company are left out of pocket. This practice is unlawful and is a form of theft. It robs legitimate businesses who do the right thing of their income, and it robs workers of their entitlements. It also robs the Australian Taxation Office of GST, income tax and other revenues to which they are entitled, placing an unfair burden on public services and other taxpayers. PricewaterhouseCoopers estimates that phoenixing cost the Australian economy at least $5 billion just in 2016-17. This includes $3.2 billion in unpaid bills, $300 million in unpaid employee entitlements and $1.7 billion in unpaid taxes and compliance costs.

While robbing the Australian economy of $5 billion a year is unconscionable, what is even more tragic is the individual stories of creditors who have been impacted by this crime.

Workers are no doubt amongst some of the most vulnerable creditors, as they rely on their fair entitlements for day-to-day living. In their submission on the exposure draft of this bill, the Australian Council of Trade Unions talked about the impact of phoenixing on workers. Their submission quoted Vivienne Wiles, an industrial officer with the CFMMEU, who recounted having to break the news to textile workers that their entitlements had been stolen. Ms Wiles 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 were working class people, sometimes who'd worked ten years or more on low award wages, and I had to tell them that there's no money.

This would be devastating news to any worker and their family. I ask those on the other side to imagine how they would feel if all of a sudden all their superannuation was just gone and they weren't able to access it.

We've heard numerous examples this morning from a lot of other speakers about the broad range of areas impacted by illegal phoenixing, like building and construction and textile workers; Senator Sterle gave some examples in the trucking industry. It is very, very broad ranging. It's particularly galling to know that practitioners of illegal phoenixing can carry on in another business, having stolen the entitlements that workers and their families rely on to pay the rent, put petrol in the car and put food on the table.

Fortunately, there have been some successful prosecutions of this crime. I'm aware, for example, of a case of illegal phoenixing in my home state of Tasmania that was brought to court by the Australian Securities and Investments Commission. Amy Timko was the sole director of a business called, ironically, A Twisted Little Company, or ATLC for short, which operated noodle-box franchises in northern Tasmania. She sold the plant and equipment of ATLC to another company for $30,000 and authorised the transfer without receiving payment. ATLC then went into liquidation, and its franchise lessees were reassigned to a new company, contrary to franchising agreements between ATLC and the franchisor. Ms Timko received a two-month suspended sentence and was disqualified from being a company director for five years.

An Australian Taxation Office crackdown on 340 companies which were audited for phoenix activity in 2018 resulted in $270 million in tax bills being issued. While some people who engage in phoenixing are successfully caught and prosecuted, it is a practice that has persisted despite attempts over decades to crack down on this bad behaviour. Sadly, if the PwC report is accurate, the successes that our agencies achieve are really only scratching at the surface of the issue. But even when criminals are caught and prosecuted, this does not mean creditors automatically receive their money; they have to take action separately.

The bill before us now includes a new phoenixing offence that will catch directors who make creditor-defeating dispositions, defined as the transfer of assets from a company when the company was insolvent, became insolvent because of the transaction within 12 months, or enters into administration within 12 months of the transaction. This will allow ASIC to make orders to recover company property in phoenixing cases. Also included in the bill are new measures preventing directors from improperly backdating their resignations. This is a little trick that a number of them use—they backdate their resignation to avoid personal liability. The bill also provide new powers for the ATO in relation to GST liabilities in tax refunds, which will improve their ability to pursue tax cheats who seek to defeat the ATO through the use of illegal phoenixing.

Labor welcomes these measures, but we do believe that the government can and must go further. Professor Helen Anderson of Melbourne Law School is Australia's foremost expert on phoenixing. She stated that this bill will not solve the phoenixing problem. It's worth noting Professor Anderson's comment, in her submission to the exposure draft, that part of the problem with cracking down on phoenixing is the lack of enforcement by ASIC of existing provisions.

Labor will be moving amendments to strengthen this bill, and we urge the government and the crossbench to support them. We are going to move an amendment to require a statutory review to be conducted. This approach is supported by stakeholders and will provide better evidence for any future reforms to phoenixing law and additional support for ASIC's enforcement processes. We are also going to move detailed amendments to implement director identification numbers, DINs. Implementation of DINs would require company directors to be registered with a unique identification number on a government registry following an identification check.

They would make it easier to track directors who regularly engage in phoenixing activities, because, right now, it's far too easy to register as a director. You don't need 100 points of identification. In fact, it's easier to register a company than it is to open a bank account. Given the lax system of identifying directors, it's also easy to register someone else as a director without their knowledge or someone who has died, or a fake name or even your family pet. On top of this, there are real cases of peoples' names being used by criminals for directorships without their consent, and the consequences for those victims have often been disastrous.

Labor made a commitment to implement DINs in the lead-up to the last federal election. This measure should be easy for the government to support given they previously moved legislation to implement DINs legislation, which has now lapsed. The government's commitment to DINs was made as far back as the 2018-19 budget—that's 21 months ago. And what have we seen them doing in between? They've been attacking unions and the people who represent these workers—unions that often go in to represent workers when a company has been illegally phoenixed, in fact.

We've had numerous hours of the government taking every possible opportunity they have to attack the unions that support the workers who are going to lose their entitlements, but they can't have done this in the last 21 months. For a third-term government, you would think by now they would know what they were doing and would be able to get a bit better organised. So we're giving the government a belated opportunity to finally deliver on this commitment. If they're true to their promise, they will greet that opportunity with open arms.

The implementation of DINs has the support of several stakeholders, including the Australian Council of Trade Unions, the Australian Institute of Company Directors, the Australian Chamber of Commerce and Industry, the Small Business Ombudsman and many others. Professor Anderson said in her submission to the exposure draft of the bill:

A properly implemented director identification number that makes it clear to the would-be director that ASIC and the ATO can see their present and previous corporate dealings is vital.

I'll conclude my contribution to this bill by making some further observations about the impact of phoenixing on workers. The ACTU, in their exposure draft submission, noted that the Fair Entitlements Guarantee is a limited scheme. It does not cover all entitlements and it still leaves workers out of pocket. One of the common entitlements not paid by directors who engage in phoenixing is a superannuation guarantee, which is not covered by the FEG and, in many cases, has not been paid over the course of the workers' employment. Who loses when the employer hasn't paid the superannuation? It's the workers, again. It's the workers who rely on the unions, once again, to go to bat for them to get their entitlements. Unfortunately, the ATO has a poor record of recovering these entitlements as well, and more needs to be done to crack down on superannuation theft.

The FEG is a welcome measure to protect employees' entitlements. It was only ever meant to cover entitlements in the event of genuine corporate failure. The rapid growth in the funds paid out under the FEG indicates that some companies are deliberately restructuring their arrangements to avoid paying employee entitlements and relying on taxpayers, through the FEG, to pick up the tab. Effective measures to combat phoenixing will not only reduce the burden on taxpayers through the FEG but also ensure that more workers are able to receive 100 per cent of their entitlements, which is how it should be.

For the sake of workers, taxpayers and other creditors who are unfairly impacted by the crime of phoenixing, Labor does support this bill. I urge the government to go even further in combatting phoenixing by accepting our straightforward and sensible amendments.

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