'Phoenix' laws raise concerns

The proposed phoenix laws are a package of measures designed to crack down on so‑called phoenix companies — operators who close a failed business and restart it under a new guise to avoid paying creditors and employees. The draft legislation seeks to make company directors personally liable for unpaid superannuation and to deter fraudulent director behaviour.

Under the draft laws, company directors can be made personally liable for unpaid superannuation owed to their workers. The revised draft also includes procedural changes around how and when the Australian Taxation Office (ATO) can recover those debts from directors.

The revised draft introduced a 21‑day waiting period after the ATO serves a penalty notice on a director before recovery action can start (previously the ATO could recover without serving a notice). It also extended the window for when a new director becomes liable for pre‑existing super debts from 14 days to 30 days.

The AICD has warned the laws risk penalising honest directors because, as drafted, they would apply to all Australian company directors rather than being narrowly targeted at those suspected of phoenix activity. The institute says the bill could create an overly burdensome liability risk for the majority of directors who comply with the law.

Assistant Treasurer David Bradbury has said the measures make it clear directors have an obligation to ensure workers' superannuation is paid and will force fraudulent directors to be liable for unpaid super. He described the changes as striking an appropriate balance between protecting workers' entitlements and not discouraging people from becoming directors.

The Australian Taxation Office has estimated phoenix activity costs the economy up to $2.4 billion a year, which is cited as a key reason for introducing tougher measures against these operators.

The draft legislation was originally released last year but was pulled in November for further consultation after stakeholder concerns. A revised draft was later released; submissions on the draft close on May 2, and the government is hoping to pass the bill in the winter sitting of Parliament.

Investors should follow the final form of the legislation and consultation outcomes because the laws affect director liability and corporate governance. Key things to watch are whether protections for honest directors are strengthened, the timing rules for director liability, and any changes that could influence company management behaviour or risk profiles — all of which can matter when assessing investments.