GARETH PARKER:
Now earlier this year we spent quite a bit of time talking about a rash of building company collapses and this caught up a lot of people, a lot of people who work in the industry, particularly subcontractors, I would like your help this morning again 9221 1882 is phoenixing still happening in this West Australian economy? By phoenixing we mean, well we'll get the definition from the Minister Kelly O'Dwyer in a moment, that it's dodgy behaviour, it's about directors trying to evade their obligations. If you're in the building industry you know about this. My question to you is, is it still happening here in WA? Love to hear from you 9221 1882.
The Financial Services Minister is Kelly O'Dwyer. Kelly – good morning.
KELLY O’DWYER:
Good morning Gareth.
GARETH PARKER:
What's your best definition of phoenixing for us?
KELLY O’DWYER:
Well basically illegal phoenixing happens when controllers of the company strip the company's assets and transfer them to another company to avoid paying the original company's debts, and what that means is that you can have a whole heap of people who are impacted by it. You can have unpaid trade creditors, employees who have not been paid employee entitlements and the government is obviously affected too when people don't pay the taxes which has implications for all good Australian citizens who obviously rely upon that revenue in order to fund the services that we expect like schools and hospitals and the like.
GARETH PARKER:
Okay, anecdotally we hear it happens a lot but getting your hands around the problem and trying to define it and describe it is tricky. Do you have an estimate of the scale of the problem?
KELLY O’DWYER:
Yes, we do. In 2014 we formed the Phoenixing Taskforce which has brought together around 30 agencies, led by the Australian Taxation Office, and our conduct regulator ASIC. They commissioned a report to look at the direct impact of illegal phoenixing activity on individuals and on our economy more broadly. I released a report today, which they commissioned, by PwC which says that it can cost up to around $5 billion per annum and that is a very big number.
GARETH PARKER:
So who is wearing those costs Kelly?
KELLY O’DWYER:
As I said it can be employees, it can be creditors and the Australian people more broadly.
GARETH PARKER:
And the ATO.
KELLY O’DWYER:
So many people are impacted but they're probably the three main catchments and that's why we've needed to not only identify the problem but then look at what are the actions that we can take to crackdown on dodgy and dishonest directors and we have also announced that we have got new phoenixing offences. Those people who conduct these phoenixing arrangements or even who facilitate those phoenix transactions will be potentially jailed for up to 10 years or fined $945,000 or three times the benefit gained from that activity or both.
GARETH PARKER:
Okay.
KELLY O’DWYER:
Now these are new civil and criminal penalties that will apply to people who engage in this really destructive behaviour.
GARETH PARKER:
In the realm of anecdote here but when we've discuss these issues in past on the program people tell me that it's rife but that it's very difficult to detect or that they report it to the authorities and nothing seems to come of it. Are ASIC, I guess, adequately resourced? They've got these new powers that you have just described to us in terms of penalties but is it a difficult thing to prove, to uncover?
KELLY O’DWYER:
It has been, which is why these new phoenixing offences are so critically important and why it's so important that we actually have a dedicated Phoenix Hotline. Now that's actually going to come through the Australian Taxation Office and it's something that I announced today. I can actually give your listeners the number if you would like.
GARETH PARKER:
Please do.
KELLY O’DWYER:
1800 807 875, that's 1800 807 875. If people are concerned – and it's often small businesses that are so impacted by this that have not been paid what they should have been paid for providing a service or a product – they can contact the hotline. If an employee is concerned that they have not got their superannuation guarantee entitlement or any of the other entitlements they can also contact the hotline if they think that is a problem with the business. We’ve got a whole raft of other measures that we've been putting into place to make sure that, for instance, ASIC has got new powers to clawback assets that a company has stripped, where there has been an illegitimate transfer, and where we are stopping directors, particularly sole directors, from resigning and leaving a company an empty corporate shell with no directors which of course makes it incredibly hard for creditors to be able to actually get the monies that are owed to them.
GARETH PARKER:
That clawback provision if it's effective, I think, that that's potentially very powerful because that's the issue isn't it? It's one thing to put a company into administration but if there are no assets you don't get any money back. You might have done the work, supplied the building materials, for example, in the building industry, find to put a company into administration but if there is no money there, because it's been stripped out, well you're stuck.
KELLY O’DWYER:
Absolutely right and this is where we have seen people use phoenixing as the business model, ripping off other people left right and centre, and we have seen, increasingly, facilitators of this sort of behaviour where they actually go to a failing business and say 'we can help you strip out the assets if you'll give us a payment or a portion of those assets so that you can keep the assets and you can defeat all your creditors'. Now that is absolutely not on.
GARETH PARKER:
It's unconscionable.
KELLY O’DWYER:
It's totally unconscionable and it's the reason why we have taken such strong action now to make these new offences, to give increased powers to regulators, both ASIC and also the Australian Taxation Office, it's why we've now got a dedicated hotline so that people can, if they have got concerns, raise it directly with the Australian Taxation Office and it is why we have increased the ability of our regulators to prevent directors doing dodgy things like backdating their resignations or resigning and leaving a company with no directors at all.
GARETH PARKER:
Okay, just quickly, I can't imagine that you would run into too many difficulties getting this through the Parliament and the Senate – do you anticipate that it will be smooth passage of this legislation?
KELLY O’DWYER:
We hope so, as you say it is never always certain to have smooth sailing with these things, but how can anybody argue against cracking down on this sort of behaviour. I mean it's been prevalent, as we know, in the construction industry, but not only in construction, it's in labour hire, in payroll services, security services, cleaning, some cafes and restaurants, I mean there are a lot of people who have been impacted by this and it is really catastrophic not only for those individuals who have been impacted but for our economy more broadly and so we have to put an end to it.
GARETH PARKER:
Thanks Minister, appreciate your time.
KELLY O’DWYER:
Great pleasure, thanks Gareth.
GARETH PARKER:
Kelly O'Dwyer, the Financial Services Minister. I'll give you that number of the hotline again 1800 807 875. I would like to hear if this is still happening in our economy, 9221 1882, let me know.