Phoenix activity is a deliberate liquidation strategy to avoid debts, taxes and other liabilities, particularly worker entitlements and outstanding bills to small business suppliers.
It often involves a second company, newly incorporated and structured for this purpose, which arises from the ashes of its failed predecessor, yet the second company’s directors and business are essentially the same.
This type of fraud costs the economy more than $5 billion a year.
Phoenix activity affects all sectors of the economy, but the construction sector is the worst hit - directly impacting sub-contractors, tradies, and their families.
Tradie Pay Guarantee
A Shorten Labor Government will protect sub-contractors working on government projects from being left unpaid when dodgy businesses go bust through the implementation of the Tradie Pay Guarantee.
Labor will trial a new requirement for large Commonwealth construction projects that would see project bank accounts established that use cascading statutory trusts, ensuring that all businesses down the supply chain get paid on time, and set up an efficient process for handling disputes and establish a federal security of payments legislative regime based on the recommendations of the Murray Review.
Labor will then work with the States and Territories to harmonise schemes across the country where possible, including consulting on the referral of powers to the federal program. This would apply to a broader range of construction activity.
Labor will commit $7 million for the development and implementation of the Tradie Pay Guarantee.
Tradie Litigation Fund
Labor will create aN $8 million Tradie Litigation Fund for sub-contractors to access justice and see regulators take dodgy bosses to court and win.
The new $8 million Tradie Litigation Fund will give the Australian Securities and Investments Commission the ability to run more difficult court cases without draining the corporate watchdog’s resources.
Not only will this give tradies their day in court, it will also act both as a punishment and a deterrent for dodgy directors. People who deliberately burn their companies should be subject to the full consequences of failing directors’ duties, including being liable for compensation, fines of up to $200,000 or five years behind bars.
Detect, Deter, and Punish Phoenix Operators
A Shorten Labor Government will implement the following anti-phoenixing measures:
1. Require all company directors to obtain a Director Identification Number (DIN) with a 100-point ID check. This stops dodgy directors signing up under false details and allows regulators to track their operation.
2. Increase penalties associated with phoenix activity.
3. Allow the Commissioner of Taxation to name and shame individuals and entities as a penalty for the most serious tax offences.
4. Allow the Commissioner of Taxation to apply to the Australian Securities and Investments Commission for disqualification orders for directors who engaged in or oversaw serious non-compliance.
5. Introduce an objective test for transactions depriving employees of their entitlements.
6. Clarify the availability of compensation orders against accessories under the Fair Work Act 2009.
7. Undertake consultation on targeted integrity measures based on the recommendations of the Melbourne Law School / Monash Business School Phoenix Research Team recommendations.
8. Include all labour hire contracting firms in the Taxable Payment Reporting System, to increase tax compliance in a phoenix-risk sector