Doubts remain on phoenix laws changes

Legislation will still 'catch out' innocent company directors, experts have warned.

Legislation will still 'catch out' innocent company directors, experts have warned.

LEGISLATION aimed at phoenix company operators will still ''catch out'' and penalise innocent company directors, experts have warned, despite government changes to the draft laws.

The proposed laws, introduced to parliament last November, will make directors personally liable for workers' unpaid superannuation, a measure aimed at operators of so-called phoenix companies - failed businesses resurrected in a different guise, thus avoiding paying debts to creditors and employees.

The government unveiled the revised draft legislation a week ago, revealing several changes aimed at addressing industry concerns.

But accountants and insolvency specialists said a key issue had not been fixed - that directors not attempting to ''phoenix'' a business in difficulty could be forced to sell personal assets or into bankruptcy to meet the business's unpaid superannuation and taxes withheld from wages.

Worrells partner Matthew Jess said it would catch out ''a lot'' of innocent directors. ''It is something that will affect everyone who falls behind in superannuation and tax debts. It does not distinguish between legitimate business failure and so-called phoenix operators.''

Parties have until May 2 to comment on the revised laws. Pitcher Partners' Andrew Yeo said this was not enough time. ''This is the most dramatic impact on personal liability of directors, of any legislation that exists at the moment,'' he said.

Under the draft laws, the Australian Tax Office could seize personal assets of directors of a company that was three months or more behind in its superannuation and pay-as-you-go withholding tax, and the directors would not be able to place the company into voluntary administration to protect their assets.

Mr Jess said this ''significantly'' changed the current law, which gave directors 21 days notice before the ATO could take action - including when the debt was more than three months overdue.

Mr Yeo said the laws would encourage directors to pay out the ATO ahead of other creditors and said the measures would appear to have a greater impact on increasing tax revenue than overcoming fraudulent phoenix activity or protecting workers' entitlements.

A spokesman for assistant treasurer David Bradbury said the legislation ''made it clear'' directors had an obligation to ensure workers' superannuation was paid and that ''fraudulent directors'' who used phoenix companies to avoid debts would be held liable for their unpaid PAYG withholding tax and superannuation. He said the reforms were announced as part of the government's 2010 election promise to ''protect workers' entitlements and counter phoenix activity''.

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