WEDNESDAY, 24 MAY 2017
Subject/s: Cracking down on dodgy company directors
TOM ELLIOT: Ok, phoenix companies – the Labor Party today has released a policy suggesting how they would deal with the problem posed by phoenix businesses, where businesses suddenly go out of business owing a lot of money and pop up again under a new corporate guise. Joining us on the line now is Shadow Assistant Treasurer Dr Andrew Leigh. Dr Leigh, good afternoon
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good afternoon Tom, great to be with you again.
ELLIOT: Thank you for joining us. I’ve read your media release on what you would do with phoenix companies. Maybe you could just outline the few steps that you want to take?
LEIGH: Well, Tom, the biggest challenge in phoenixing is the risk that directors pop up again and again. They get barred and then they go back on and set up again pretending to be a different director. The reason they can do that is that it’s currently easier to register as a director than open a bank account. So our proposal is a director identification number, something which has been recommended by the Productivity Commission, Monash and Melbourne Universities, supported by the Australian Institute of Company Directors. It was indeed supported today by the small business ombudsperson. It’s a measure which makes it harder for dodgy directors to rip off firms and workers and taxpayers.
ELLIOT: Ok, well, I agree because I’m a director of a number of companies and pretty much all you do is say your name and address and away you go. So you’re asking to show my passport and my driver’s license and whatever else. Do you think that will actually change things very much?
LEIGH: It certainly provides a first line of defence, which is why all of these organisations have been calling for some time for director identification numbers. Tom, I’ve frankly been flabbergasted the government hasn’t moved on this. University experts have been putting out reports for the past three years.
ELLIOT: I don’t disagree! It certainly couldn’t hurt. Now, what about penalties for directors of these phoenix companies? What do you want to do there?
LEIGH: We believe that the penalties are too low and ought to be raised, particularly for ripping off employee entitlements. This is fundamentally a pro-business measure, because yes, it’s workers that get ripped off, but according to the number crunching PwC did five years ago, the biggest losers from phoenix activates were legitimate business people.
ELLIOT: Other business people. Can I just say to you, I’ve seen phoenixes come and go and I’m astonished it’s allowed to happen. But the problem is, if you’re a business that’s been ripped off by another business, they suddenly say ‘oh well, we’ve gone broke, we can’t pay you’ - in order for you to go after them, you’ve got to launch a civil law suit. That takes time and money. A lot of businesses I know just write the debt off and just get back to work.
LEIGH: That’s the challenge and that’s why we need to make sure too that it’s actually possible to get a conviction in these cases. There’s never been a conviction for ripping off employee entitlements – that’s in part because the test is so hard to meet. Changing it so we’ve got an objective test for depriving employees of their entitlements, we believe, will make it easier to crack down on dodgy directors.
ELLIOT: How will you distinguish between businesses that go bust for legitimate reasons, like it’s just business is not going very well, versus those that have done it deliberately to avoid paying people money?
LEIGH: Well, phoenixing is when the courts decide that you’ve breached your directors duties, where you’ve failed to wind up the business at the appropriate time, where you’ve failed to pay your debts to other companies. I mean, people who have been ripped off by phoenix operators certainly have no doubt it’s happened to them. I was reading about a bloke in regional Victoria who lost $200,000 doing plumbing works in a caravan park for a company which had all kinds of questionable shell operations. That phoenix company went bust owing $8 million to 300 creditors. And yet the current laws just aren’t tough enough for dealing with those dodgy operators and making sure honest, hardworking business people aren’t ripped off by dodgy phoenix operators.
ELLIOT: Thank you, Dr Leigh. Andrew Leigh there, Shadow Assistant Treasurer – well, look he’s right.