Bid to stop 'phoenix' rising
The corporate watchdog has pledged to crackdown on construction and building industry players suspected of illegally "phoenixing" their failing businesses.
Investigations will be conducted into the pre-collapse activities of 1000 failed companies, as well as the creation of a new surveillance program to boost the early detection of phoenix activity, according to the Australian Security and Investments Commission.
The plan follows a 2012 report commissioned by the Fair Work Ombudsman that identified phoenix activity as a "significant problem" for the sector, which could cost employees up to $350 million in lost wages and entitlements a year.
Phoenix activity is the fraudulent act of transferring the assets of an indebted company into a new entity - usually operated by the same director - in a bid to to avoid paying creditors, tax or employee entitlements.
"We are interested in construction - and labour-hire because it is closely connected - because it's in this industry where much of the illegal or fraudulent phoenix activity occurs," an ASIC spokesman said.
"Our new surveillance program is proactive - it aims to detect and deter this type of conduct before it happens."
But some industry experts warn that it can be difficult to detect.
"Those who can benefit by it - the shareholders, suppliers and employees that get carried along - pretty much close ranks and that's where I think ASIC would find it a problem," said Robbie Berry, of BCR Partners.
Research conducted by PriceWaterhouseCoopers on behalf of the Fair Work Ombudsman has classified building and construction as a "medium risk" industry for phoenix activity, although certain trade categories such as bricklaying were deemed "high risk".
The report found phoenix activity cost the average employee $9897 and affected between 1 per cent and 5 per cent of industry workers.
ASIC reports that administrators flagged 3765 incidents of potential criminal offences and civil misconduct in the construction industry in initial reports filed with the regulator in the financial year 2011-12. The industry posted the second-highest number of incidents after the category "other business and professional services" (4823).
The move against the building and construction sector is part of a wider crackdown on phoenix activity that will include surveillance and investigations of the labour hire, transport and security industries.
The regulator plans to look at the activities of 2500 directors at 1400 companies that were wound up after July 2011.