HOUSE OF REPRESENTATIVES, 8 DECEMBER 2020
It's a pleasure to follow my friend and colleague the member for Kingsford Smith, who articulated the concerns that Labor has over this bill.
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 if you do the work you get paid. It doesn't matter how far down the supply chain you are.
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, that 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.
Authorised by Paul Erickson, ALP, Canberra.