Phoenix company activity has no place in Australian industry and must be stopped, a key building and construction industry group says.
Wilhelm Harnisch, chief executive of Master Builders Australia says phoenixing has wide-ranging implications for a number of parties, including workers, suppliers, government agencies and legitimate businesses.
“Employees are robbed of wages and entitlements. Honest businesses are left with bad debts,” Harnisch says. “They are out of pocket for goods and services provided, but not paid for. The Government loses millions in unpaid taxes.”
Essentially, phoenix activity it is a way for directors and owners of companies to fraudulently avoid paying money owed by companies they control.
It occurs when directors of one company transfer the assets of the company to a new company also under their control, leaving the old company with liabilities relating to unpaid wages and employee entitlements, unpaid taxes and amounts owing to creditors with no assets from which to pay these liabilities.
The resultis that workers, government agencies and creditors are left short-changed while directors and owners walk away from their debts and carry on business under a new company structure.
Harnisch adds that companies engaging in phoenix activity can undercut honest operators to win contracts.
A report published this week by the Fair Work Ombudsman puts the total cost to workers, honest businesses and the government at between $1.78 billion and $3.19 billion each year.
Though the report does not give a sector breakdown, the prevalence of phoenix activity in building and construction has been established since as far back as the Cole Royal Commission early last decade.
Already, a number of laws exist to curb the practice, such as rendering directors personally liable to compensate workers and governments for unpaid wages, entitlements, Pay As You Go (PAYG) tax and Superannuation Guarantee Charge (SGC) contributions in certain circumstances with regard to companies under their control.
The report recommended a number of further measures be considered, including adopting a definition of the practice; more cross-agency monitoring initiatives between bodies such as the Fair Work Ombudsman, the Australian Securities and Investments Commission and the Australian Taxation Office; and further measures to enable affected parties to recover lost money or agencies to recover money on victims’ behalf. Toward that last objective, the report suggests allowing workers to recover money through civil court proceedings or allowing Fair Work Australia to sue on behalf of affected workers.
Harnisch says Master Builders welcomes the proposed definition of phoenixing and greater co-operation between agencies.
He notes, however, that current laws are sufficient to fight phoenix operators and that caution should be exercised prior to the introduction of any new laws.
“The passage of new laws should be carefully considered,” he says. “Master Builders believes that there is sufficient current law to fight phoenix operators.”
Harnisch points out that phoenix activity constitutes fraud and urges agencies to work together to ensure anyone engaging in such conduct are caught and face the appropriate crimincal sanctions and consequences.
“These Government agencies need to work together and act to eradicate the phoenixing practice,” he says.