There is nothing magical about phoenixing operations - Transcript, Doorstop

E&EO TRANSCRIPT

DOORSTOP

PARLIAMENT HOUSE, CANBERRA

WEDNESDAY, 24 MAY 2017

SUBJECT/S: Labor’s policy to crack down on dodgy directors; regulation of labour hire.

BRENDAN O'CONNOR, SHADOW MINISTER FOR EMPLOYMENT: I'm here with the Shadow Assistant Treasurer, Andrew Leigh and we're announcing a Labor policy to crackdown on abuse by directors and the real problems associated with phoenixing in this country. There has been too little done by the Turnbull Government to crackdown on misconduct by directors who seek to strip away assets from a company to avoid their obligations to pay creditors, in particular to pay workers who deserve those entitlements. And for that reason, Labor is announcing a suite of reforms that will provide greater accountability and transparency of directors, higher penalties if there are breaches and indeed a better way of ensuring that workers’ entitlements are paid to them. 

There's been a great deal of work done here and we really do hope the Government can consider these reforms in order to ensure that we see far less abuse in workplaces across the country. Too many rogue employers have done the wrong thing, which has hurt employees and has also hurt other companies, the majority of companies who do the right thing and of course governments have missed out too in forms of revenue, which should have been paid. So these are really important reforms and Andrew, who has done a lot of work on it, will outline in more detail.

I just want to touch upon the comments made by the Deputy Prime Minister in relation to the regulation of labour hire and contracting in this country. We know this, that in the building industry phoenixing is rife and we know that labour hire companies particularly those bottom feeders have been using this approach to avoid their obligations. When the Deputy Prime Minister was asked about this matter, he said it was the role of state governments to deal with the abuse and the failure to look after workers. That is not true. The Fair Work system is a system which of course is in the federal jurisdiction and most labour hire companies are regulated by those laws and indeed there are corporate laws that apply too. It is completely wrong for the Deputy Prime Minister to dismiss the exploitation of workers and the ability of certain employers to obviate their responsibilities in not paying worker entitlements, tax and indeed other debts owed to creditors.

I'll hand over to Andrew.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thanks very much, Brendan. Five years ago, Daniel O'Connell took on a contract to do some plumbing work in a caravan park in regional Victoria. Daniel was commissioned to do the work by a firm called Global Contracting, which eventually admitted that it wasn’t going to pay him. He was left $200,000 out of pocket. When Global Contracting collapsed, it owed $8 million to 300 creditors. The people who ran the company shifted money into other firms.

Global Contracting is yet another example of phoenixing operations. A phoenix is a bird that is reborn from its ashes, but there is nothing magical about phoenixing operations. They involve hurting workers, legitimate firms and taxpayers. As Brendan’s pointed out, it’s a scourge in our economy. An estimate five years ago said that the cost to the Australian economy of phoenix operations was around $3 billion a year. It's surely higher by now.

Phoenixing has been carefully researched. A team at Melbourne University and Monash University has spent the last three years producing report after report, detailing the scale of the problem, how it occurs and how it can addressed. And yet the Turnbull Government sat on their hands. They’ve done nothing to tackle phoenixing in Australia, a problem which is costing billions of dollars.

Labor’s policies today build on work from university experts, advice from the Productivity Commission and indeed a recommendation of the Australian Institute of Company Directors.

We’re recommending the director identification number - this reflects the fact that is currently easier in Australia to register as a director than open a bank account. That’s because there’s no 100 point identity check to become a director. That makes it easy for dodgy directors to set themselves up, get away with ripping off legitimate businesses and workers and come back and do it one more time. It shouldn’t be easier in Australia to become a director than to open a bank account. A director identification number will change that.

We’ll also increase the standard of proof for catching dodgy directors. Right now, it’s a subjective test and we’ll put in place an objective test for depriving employees of their entitlements. That means it’s easier to catch dodgy directors.

And third, we’d increase the penalties, making sure that for this kind of egregious behaviour, we’d properly crack down on fraudulent directors who are ripping money out of our economy. As Brendan says, this is a pro-worker measure. It's also a pro-business measure. The Australian Institute of Company Directors has called for director identification numbers because they know that it’s legitimate directors that get a bad name from phoenixing operations. They know that it’s legitimate workers and small businesses, like Daniel O’Connell’s, that are hurt from phoenixing operations.

Labor’s package has been carefully thought through, carefully costed. It’s developed in consultation with experts and we’re calling on the Turnbull Government not to wait, but to act on phoenixing operations. They claim they’re doing so through their black economy taskforce, but when you read the fine print, it turns out the only thing the black economy taskforce has on phoenixing is a URL linking to a media release about phoenixing. The Turnbull Government is cracking down on phoenixing - one hyperlink at a time!

Labor will get tough with phoenix operations through a director identification number, through amending the standard of proof, and through making sure we have the right penalties in place.

Any questions? Thanks everyone.

ENDS


Showing 4 reactions

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  • commented 2017-05-24 13:03:35 +1000
    Major contracts should require the quarantining of payments / pay direct to 2nd and 3rd tier subbies. (retention should be held in a independent central trust account)
  • commented 2017-05-24 12:58:22 +1000
    ASIC databases should be free to access
  • commented 2017-05-24 12:56:21 +1000
    Related party loans (even secured loans) should go behind unsecured creditors in the Que. Loan payments to related parties during the previous 24 months --> preferential payment
  • commented 2017-05-24 12:53:56 +1000
    Dividends, above market salaries & bonuses paid to related parties in the prior 24 months to a phoenix company collapsing should get treated as preferential payments.

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