Updated 14.8.23: While pondering the 2023 Parliamentary Joint Committee’s recommendations about pre-insolvency advisers, I am reminded to go back to some earlier comments that in any regulation, the commercial and legal environment within which the untrustworthies operate should first be improved before any law changes – the usual regulatory laws, draconian penalties, threats etc – are tried.
This is in light of the PJC’s recommendation [15] that while the issue needed further consideration in the suggested comprehensive review, “in the interim, the government take prompt action to improve the regulation and active enforcement of pre-insolvency advisers”.
Never give a sucker an even break
That is, while untrustworthy pre-insolvency advisers are railed against, and need to be regulated in some way, I query whether our rather opaque business environment in which they can and do comfortably operate should be fixed first.
As Professor Helen Anderson explained, illegal phoenixing, for example, is
“easy to do, cheap, highly profitable, relatively invisible and rarely pursued by regulators”,[1]
such that from an untrustworthy adviser’s viewpoint, why give the suckers losing out an even break?
If the government wants to allow that invisibility to remain, dodgy advisers simply see no need to give the ATO or other sucker any break, even or otherwise.
Sunlight is a good disinfectant
But the government has a number of ways of removing that conducive environment and it seems to be acting on some? As Professor Anderson also says, sunlight is a good disinfectant,[2] and just as street lighting operates as an effective control over certain criminal behaviour, so does transparency in commercial dealings.
Here are some rays of sunlight to enable the government, as the PJC suggests, to “take prompt action to improve the regulation and active enforcement of pre-insolvency advisers”:[3]
- Director identity numbers publicly accessible – “A DIN should also be searchable by the public via ASIC’s online registers and should reveal present and past directorships. Requiring directors to use their DINs in their dealings with creditors, as the ABN is currently used, would enable creditors to conduct their own self-protection inquiries prior to dealing with companies. This transparency should act as a serious deterrent to directors hoping to conceal their illegal phoenix activity through the formation of a new company”: see Guerilla tactics needed against phoenix misconduct – Murrays Legal. Are director identity numbers publicly accessible?
- Credit reporting of large tax debts, which system is in operation Disclosure of business tax debts | Australian Taxation Office (ato.gov.au)
- A beneficial ownership register, which is only a work in progress: see Multinational tax integrity: Public Beneficial Ownership Register | Treasury.gov.au. As to the unfortunate history of this, and anti-money laundering laws generally, see Anti-money laundering laws to be improved, including registers of beneficial owners – Murrays Legal; and more generally Australia on a slide? – Murrays Legal
- Free public access to ASIC/ABR databases: still in train? A comment from the past is here MYEFO 2019-20 – ASIC, phoenixing and ‘journalists’ – Murrays Legal.
- Single touch payroll – a shadow of what it could yet be? “The government could consider that their designated High Risk Phoenix Operator population be required to report and pay these taxes via single touch payroll”,[4] or perhaps the government could require all employers to report and pay these taxes via single touch payroll.
There are no doubt more ideas around, as to which see Implementation of the Government Response to the Black Economy Taskforce Report | Australian National Audit Office (ANAO) of 19 June 2023.
Reform
Once each or even most of these mechanisms is in place, the law can start to look at regulating what is left of untrustworthy advisers. Of course this might need to look at pre-insolvency advice generally, including by insolvency practitioners.
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[1] Australian Government, Treasury, Combatting Illegal Phoenixing, September 2017. Submission by Professor Helen Anderson, Professor Ian Ramsay and Mr Jasper Hedges, Melbourne Law School, and Professor Michelle Welsh, Monash Business School, Monash University, 9 October 2017.
[2] ‘Sunlight as the Disinfectant for Phoenix Activity’ (2016) 34 Company and Securities Law Journal 257, H Anderson.
[3] See Hassan, Trisha — “Insolvency and Illegal Phoenix Activity in the Construction Industry: an Analysis of the Current Measures in Place and Potential for Law Reform” [2022] UNSWLawJlStuS 16; (2022) UNSWLJ Student Series No 22-16 (austlii.edu.au)
[4] Australian Government, Treasury, Combatting Illegal Phoenixing, September 2017. Submission by Professor Helen Anderson, Professor Ian Ramsay and Mr Jasper Hedges, Melbourne Law School, and Professor Michelle Welsh, Monash Business School, Monash University, 9 October 2017.
