Today, I am pleased to indicate the government's support for the commonwealth Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2018. Phoenixing activity is not defined in legislation and can encompass both legitimate business rescue activity and the use of serial deliberate insolvency as a business model to avoid paying company debts.
A common feature of phoenix activity is the stripping and transfer of assets from a company to another entity with the intention of defeating the interests of the company's creditors in the assets of the company.
In 2015, illegal phoenixing activity was highlighted as a significant issue in the Senate Economics Reference Committee's inquiry into insolvency in the Australian construction industry. A July 2018 report by PricewaterhouseCoopers, prepared for the Phoenix Taskforce, estimated the annual direct cost to businesses, employees and government as a result of potential illegal activity to be between $2.85 billion and $5.13 billion in 2015-16.
Illegal phoenixing activity has serious impacts upon the employees of the phoenix company, businesses and contractors, who are owed money because they have supplied goods and services, and statutory bodies, such as the Australian Taxation Office. It also gives phoenix companies an unfair advantage over other competitors, damaging the competitive process. I commend the federal government for its commitment to ongoing reform of Australia's corporate insolvency regime through the introduction of this bill and other recent legislation designed to counter illegal phoenixing activity.
The bill implements the third tranche of the federal government's reforms and contains a package of measures to combat illegal phoenix activity by:
introducing new phoenix offences and civil penalty provisions for company officers and other persons who fail to prevent the company from making creditor-defeating dispositions;
creating a new ASIC administrative power and a new void transaction provision to combat illegal asset-stripping activity;
enhancing the ability of ASIC and liquidators to recover assets back to the company for the benefit of creditors;
preventing directors from improperly backdating resignations to avoid liability or prosecution; and
limiting the ability of directors to resign when this would leave the company with no directors.
The South Australian government is committed to supporting these laws and creating a fair, competitive environment that provides equal commercial opportunity for all companies and businesses and looks forward to seeing the introduction and favourable passage of the commonwealth bill.