All directors to bear the brunt as Government fails to target real phoenix company operators
- Date:03 May 2012
- Type:Media Release
At a time when the international economy is focused on increasing business productivity, the Australian government has again prioritised conformance over performance by over-regulating the majority of directors to target the few engaged in fraudulent phoenix company activity.
In a submission to Treasury in response to revisions to the Tax Laws Amendment (2012 Measures No. 2) Bill 2012, the Australian Institute of Company Directors has reaffirmed its strong opposition to the Bill as it relates to employees’ unpaid superannuation guarantee entitlements. In particular, that the Bill places all of Australia’s 2.1 million directors, including directors of small and family businesses, schools, hospitals and charities, at risk of being personally liable for the company’s unpaid superannuation guarantee amounts - regardless of the directors’ culpability.
“The Bill offends the rule of law, largely imposes automatic liability on directors regardless of their culpability, and gives the ATO wide ranging powers in circumstances where directors are not suspected of dishonesty,” said John Colvin, CEO and Managing Director, Australian Institute of Company Directors.
“Of great concern, is the fact the Bill makes new directors personally liable for the actions of the company even when the person was not a director at the time of the company’s breach,” he said.
This submission follows previous comments made by Company Directors to the House of Representatives Standing Committee on Economics and the Senate Economics Committee relating to proposed measures initially included in the Tax Laws Amendment (2011 Measures No. 8) Bill 2011.
“We have repeatedly called on the Government to confine the proposed legislation to instances where fraudulent phoenix activity is suspected,” said Mr Colvin.
“We are firmly of the view that if new legislation is being introduced to target a specific problem, then the legislation must clearly define the issue sought to be addressed and specifically regulate that problem. If the Bill did this, and actually contained an appropriate definition of fraudulent phoenix activity and had the usual safeguards, we would be less concerned about its introduction.”
“However, as it stands, it is a classic example of overreaching and damaging legislation. Even if one uses the ATO figures, less than half a per cent of directors may be engaged in phoenix activity,” said Mr Colvin.
The submission argues that the Bill is contrary to the spirit of COAG’s intended reforms of director liability by imposing further personal liability on directors for acts of the company, even when they are totally innocent.
“It is disappointing that at a time when COAG is working to remedy the economic problems caused by this type of legislation on one hand, the Federal Government is hindering these efforts by adding to the director liability burden with the other,” the submission states.
“The risk of liability (when culpability is not a pre-requisite) focuses director’s attention unnecessarily on conformance, rather than performance issues, to the detriment of productivity and the economy. It also fundamentally violates the rule of law, provides limited defences and reverses the onus of proof” said Mr Colvin.
“Further, while a Regulatory Impact Statement was prepared in July 2011, it focused solely on targeting phoenix activity and yet the Bill itself is not confined to instances where fraudulent phoenix activity is suspected,” he said.
The findings of Company Directors’ April 2012 Director Sentiment Index revealed that, for the third consecutive survey, excessive red tape, along with onerous director liability and compliance requirements, remains a major concern to Australia’s directors.
About 40 per cent of directors believe that legislation imposing liability on directors has a negative impact on their business decisions and their willingness to serve on a board.
“The Director Sentiment Index again showed that the accumulation of laws is a huge and costly problem for business. It has also found that the current plethora of laws involving director liability is having a negative effect on board recruitment and retention,” Mr Colvin said.
“We anticipate that the continual increase in liability provisions and penalties such as these will continue to seriously impact upon the willingness of talented and honest people to take up directorships for the benefit of all Australians,” said Mr Colvin.
Again, the Government has only allowed a short consultation time, two weeks, to review the revised legislation.
“We are of the view that such a consultation period is inadequate. When governments are considering new laws impacting business, there should wherever possible be appropriate consultation with business to ensure that issues of principle, unintended consequences and practical problems can be identified and dealt with,” said Mr Colvin.
Download the above media release, 'All directors to bear the brunt as Government fails to target real phoenix company operators' (PDF 138KB)
Download our Submission to Treasury in response to revisions to the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 (PDF 4MB)
Michelle Wood, Media and Government Relations Advisor, 0466 655 115
Steve Burrell, General Manager, Communications and Public Affairs