Warning phoenix law may burn innocent

THE body for company directors has slammed plans to make directors liable for not paying their workers' superannuation, saying the proposal "tramples on the presumption of innocence".

By InvestSMART · 1 Nov 2011

By InvestSMART ·
1 Nov 2011

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THE body for company directors has slammed plans to make directors liable for not paying their workers' superannuation, saying the proposal "tramples on the presumption of innocence".

Proposed laws that will soon come before Parliament will give the taxman powers to pursue directors who fall more than three months behind on superannuation contributions. The measures are designed to crack down on "phoenix" companies fraudulent companies that are deliberately liquidated to avoid paying staff entitlements.

However, Australian Institute of Company Directors chief executive John Colvin yesterday said the bill could punish directors who had done no wrong, as it applied to directors who joined a company after alleged breaches had occurred.

"At stake here are the fundamental principles that underpin the rule of law, and basic fairness this bill tramples all over presumption of innocence and due process," Mr Colvin said.

"We're supportive of efforts to reduce fraudulent phoenix activity, but in its current form the bill could punish individuals who have had nothing to do with real or perceived transgressions. This is like punishing a driver for the driving offences of the car's previous owner."

Government sources responded by saying existing laws can already make directors liable for debts incurred before their employment started.

As well, Mr Colvin said the proposal meant all the country's 2.1 million directors were at risk of being pursued, not just those of phoenix companies.

Assistant Treasurer Bill Shorten last month said there were between 7500 and 9000 directors who would be liable under the legislation, citing estimates there were 6000 phoenix companies in Australia. "The amendments balance the importance of ensuring employees receive their entitlements and deterring phoenix activity, against the need to ensure entrepreneurialism and commercial risk taking is not discouraged," he said.

The Association of Superannuation Funds of Australia has backed the changes, saying the retirement savings of thousands of workers were suffering due to phoenix activity.

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Frequently Asked Questions about this Article…

What do the proposed laws about directors being liable for unpaid superannuation say?

The proposed laws would give the tax office powers to pursue company directors who fall more than three months behind on their workers' superannuation contributions. The measures are aimed at cracking down on so‑called phoenix companies that avoid paying staff entitlements.

What is a phoenix company and why are investors hearing about them?

A phoenix company, as described in the article, is a fraudulent business that is deliberately liquidated so its operators can avoid paying staff entitlements like superannuation. Regulators are targeting phoenix activity because it can harm employees' retirement savings and undermine fair markets.

Could innocent or new directors be unfairly pursued under the bill?

Industry critics say yes. The Australian Institute of Company Directors' CEO John Colvin warned the bill could punish directors who had nothing to do with earlier breaches — for example, directors who joined a company after alleged wrongdoing — and that it risks trampling the presumption of innocence and due process.

How many directors or companies might be affected by these changes?

Estimates cited in the article differ: the AICD warned that all 2.1 million Australian directors could be at risk under the proposal, while Assistant Treasurer Bill Shorten said between about 7,500 and 9,000 directors would be liable, referencing an estimate of roughly 6,000 phoenix companies.

Who supports the tougher rules on unpaid superannuation and why?

The Association of Superannuation Funds of Australia (ASFA) supports the changes, arguing that retirement savings for thousands of workers are being harmed by phoenix activity. The government says the amendments aim to balance protecting employees' entitlements and deterring fraud while not discouraging entrepreneurship.

Who is opposing the proposed director liability changes and what are their main concerns?

The Australian Institute of Company Directors has strongly opposed the changes, arguing they could punish innocent individuals, erode basic fairness and due process, and discourage legitimate commercial risk‑taking by directors who were not involved in past breaches.

How exactly would the tax office pursue directors for unpaid superannuation under the proposal?

According to the article, the proposal would allow the tax office to pursue directors when a company is more than three months behind on superannuation contributions. The article does not detail the enforcement mechanics beyond granting those powers.

What should everyday investors watch for as this bill goes before Parliament?

Investors should watch parliamentary debate and any changes to the bill, because the outcome could affect director liability standards, corporate governance expectations and the balance between protecting employees' super and encouraging entrepreneurship. Also note industry reactions from groups like the AICD and ASFA, which signal competing concerns about fairness and worker protection.