Kate Carnell

Labor phoenixing proposal has merit, says ASBFEO

The Australian Small Business and Family Enterprise Ombudsman has backed a proposal from Labor to name and shame directors to help deal with the phoenixing of companies.

Shadow assistant treasurer Andrew Leigh said the proposal would enable the Tax Commissioner to name and shame directors who deliberately “burn” companies to avoid their obligations to small businesses, employees and government.

In addition, the Labor proposal would allow the Tax Commissioner to apply to ASIC and have them seek disqualification orders for directors engaged in or have overseen serious non-compliance.

“Phoenix activity – where dodgy directors deliberately burn companies in an attempt to avoid their obligations to employees, government and honest businesses – is estimated to cost the Australian economy as much as $5.1 billion,” Mr Leigh said.

“These new measures – along with previous commitments such as requiring all company directors to obtain a unique Director Identification Number with a 100-point identification check and increasing penalties associated with phoenix activity – will help protect Australian jobs and the economy.”

In response, ASBFEO Kate Carnell said that, given small business subcontractors sit at the bottom of the pecking order, it’s another approach that could help deal in part with the problem of company phoenixing, which destroys small businesses.

Further, she said naming and shaming can help alongside the already announced measures to combat phoenixing, such as the Director Identification Number.

“The proposal extends to ensuring a closer and more effective working relationship between the Australian Taxation Office and the Australian Securities and Investments Commission to obtain director disqualification orders,” Ms Carnell said.

“However, there is still a need for other practical on-the-ground approaches to help combat the impact of phoenixing on small businesses in supply chains, such as creating deemed statutory trusts to ring-fence moneys owed to subcontractors so they cannot be instead used to help shore up insolvent businesses.

“Subcontractors in supply chains are particularly vulnerable as, unlike employees, they are not protected by the government’s fair entitlements guarantee; a safety net to pay unpaid entitlements.”

One thought on “Labor phoenixing proposal has merit, says ASBFEO

  • November 16, 2018 at 1:42 pm
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    Whilst any steps taken in this area are welcomed, they are still focussed at the bottom of the cliff. How about making all new companies provide a bond or guarantee that can be used where a business becomes insolvent to meet some or all of the debts they leave behind when they burn their business. This would also provide a barrier to business entry (so that only those with the appropriate skills and funds could become registered) and also provide an incentive to run their business appropriately and in the event they do fail at least their is a pool of money that can be used to minimise the hurt to their creditors.

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