Watch Matt's speech here
Mr KEOGH (Burt) (18:28): What we have just seen here is history-breaking. The member for Goldstein has never seen a regulation that he didn't want to abolish, and he has just stood in the chamber right now, before us all, supporting the introduction of new regulation. I urge all members present to take down this date. It is a red-letter day. Mark it in your diary. I suggest to us all that we might even celebrate the anniversary of this date in a year's time, because I suspect we will never hear anything of that like again. Then, to end that amazing contribution to this debate, he urged the Labor Party, we here in the opposition, to support our own policy. We are so grateful that you have finally dragged yourselves out of your abyss of not wanting to support any consumer protection regulation in financial services and corporations and have actually decided to support our policy in this area.
Just to be very clear, this legislation does two very important things. Firstly, it modernises a whole range of registers and registries that are kept by ASIC and others, which are important for our corporate regulation, our consumer protection, and are important for regulating a number of licensee-holders et cetera.
But much more important than that is that this legislation will introduce a company director identification number. That is something that we on our side, the Labor side, have been calling for for years. It is something that I, as a member of the Joint Committee on Corporations and Financial Services, was strongly pushing the government towards in the last parliament. ASIC itself has been calling for this for a very long time. This is strongly supported. It is particularly supported because of the problem that we see in phoenixing activity in corporate Australia. Australia is not alone in phoenixing activity, but it is a particularly pernicious activity that we see in corporate Australia because of those who are left high and dry as a result of it.
It's important to explain the issue. People might think, 'Director identification number—that's pretty straightforward, that makes sense, why do we need this?' It's quite important to understand that right now, under the way our corporations are governed, if a person is registered as a director as John Smith, and then they go on the register as a director of another company as J Smith, they are two different people as far as ASIC is concerned. There are discrepancies all over the place in these registers. The director register is but one, but it is the most important one. Fixing this up, having a clear identification number so that there is one entry and it is very clear what company someone is a director of and their identity is clear, is so important for being able to manage the regulation of our corporations. It serves an important purpose not just for the regulator, but for investors, for shareholders, for creditors and for employees.
So we are very keen to support this legislation and this critical change. This change has been urged by a number of industry professionals for a long period of time to assist in cracking down on illegal phoenixing activity. I can tell you, as a former corporate prosecutor, that it is actually incredibly difficult to get into the space of prosecuting people for phoenixing. There's no offence of phoenixing, of course, but there are offences around shadow directors, and there are offences around people setting up companies and becoming a director of a company when they have been banned and prohibited from being a director of a company. What we see with phoenixing is where people deliberately remove assets from a business, transferring them into another one, winding that business down, leaving it full of debts, leaving it with its obligations to its creditors and employees. So often I have people coming to my office complaining about someone who has done precisely this, leaving them or their loved one with unpaid wages, unpaid superannuation, often for years, and who has set up business again but is completely off the hook when it comes to their obligations to their creditors to and, more importantly, to their employees.
So it is particularly important that we find ways of cracking down on this. Director identification numbers are a very important part of how we do this, so that we know when a director is involved in companies that are being wound up, especially where they're involved in winding up multiple companies, so that we know if it's the same director or the same group of directors. It's important that when they try to set up companies in the future, the corporate regulator is able to make sure that they are not going down that same pathway again. It's important that if they've been banned from being a director we are able to make sure that they don't pop up again and do this to some other unsuspecting creditors and employees.
Just to give an example: in 2018 a Western Australian business owner was sentenced to five years jail in relation to illegal phoenixing activity and ordered to pay back $890,000 in fraudulently obtained money. This related to 20 charges relating to his labour hire operations, which he had been operating from the late 1990s to 2009. In court the ATO alleged that he intentionally accumulated debt over this time, liquidated his businesses to avoid paying the bills and then set up operations through different corporate entities each time.
The capacity to track this is completely fraught because of the way our registers are currently managed. This has a damaging impact. As you can tell from that example, it's not just creditors and employees who are left ripped off: it's all of us. The ATO is often the biggest creditor that is left unpaid as a result of these activities. Indeed, the government has estimated that phoenixing activity costs the economy up to $5.1 billion a year. That is staggering.
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has said that they support the director ID number. It has received unanimous support as a policy that is key to weeding out shonky directors from corporate Australia. Also over many years numerous committee reports in this parliament have called for this to happen. But it's just like we've seen with the implementation—or rather I should say 'lack of implementation'—of the recommendations of the Hayne royal commission. I'm sure members present and those listening will remember the Hayne banking royal commission. That was the royal commission that the government tried for several years to avoid holding.
Mr Giles: They voted against it.
Mr KEOGH: That's right; they voted against it 26 times. Now, two years after this legislation was promised, we're finally getting around to debating it.
The other issue that arises with this—and ASIC flagged this when it gave evidence to parliamentary committees, and it's related to this whole suite of legislation—is that we're not ready to go yet. We can't just update the existing registers. It's not just about the legislative framework. Literally the computer databases that the existing registers are running on are about to fall over. We can't just update them. ASIC needs to upgrade all of its systems to accommodate this very important change in our corporate regulatory framework.
I know that Assistant Minister Buchholz, who is at the table, is aware of this because we have sat on committees that have looked into these things. It's really important in this context that the government makes sure that ASIC is properly funded to quickly deliver, on the most recent technology, the upgrades that it needs to its registers and databases to deal with the significant changes around the director identification number. It's all very good and well us standing in this place supporting such important legislation, but, even if we get the frameworks right, if the regulator is not empowered and empowered financially to get on with the job then we will still be confronted with this same issue for many years to come. For two years we have been waiting for this legislation to be brought on by this government, but it has obfuscated. I think about the number of employees who have walked into my office—and I daresay they have walked into the offices of nearly every member of parliament here—to complain about their being the victim of phoenixing activity, with lost wages and lost superannuation.
Small businesses in our electorates have been left with unpaid bills. They are facing cash flow shortages. They acquired materials to do whatever work they were doing for that business. They supplied that business with goods and services and they have been left high and dry. That's why there's that $5 billion cost to our economy every year. We have been waiting two years for this legislation to come forward. That's $10.2 billion that has been lost to the Australian economy through illegal phoenixing. That could have been significantly reduced by having the director identification numbers introduced.
ASIC has been crying out for it for years. Parliamentary committees, in parliament upon parliament, have been saying we need to get on and deal with this. Industry groups, those involved in regulation and those involved in law enforcement in the corporate space, such as me, have been saying that this is such an obvious problem that needs to be solved. It's very good that the government is now finally getting on with the job of resolving it. We're very happy to see the government pick up this policy, which was ours. We wholeheartedly support this happening. We urge the government to make sure that they properly fund ASIC to deliver on this commitment and that it is able to do it soon.