We Must Protect Workers When it Comes to Bankruptcy

22 November 2018

Ms BUTLER (Griffith) (18:59): This bill, the Corporations Amendment (Strengthening Protections for Employee Entitlements) Bill 2018, goes to a very, very important issue, and that is: what happens to working people when the firm they work for goes belly up and there is an insolvency. As you know, Deputy Speaker Howarth, what happens under the Corporations Act is that employees are ranked ahead of all other unsecured creditors for the distribution of remaining moneys of the corporation, but they are ranked behind all of the secured creditors. So if a bank or another lender has a mortgage or a charge over the assets of the company that is going into liquidation then that bank or other lender gets priority ahead of the employees and also ahead of other unsecured creditors, like some small businesses that might have been contracting to the corporation.

So it is very important to say: what happens to those working people in the event that the company they work for goes broke? Often, they might see a few signs along the way. Maybe the pay has been late coming in. Maybe they didn't get paid for a week that they were supposed to and are having to argue with the company about underpayment of wages. It can be quite gradual. But sometimes it's just all of a sudden—the boss walks in and says: 'I'm sorry. The company has gone broke and we're going to have to wind up.' In that situation, once the bank gets their cut and once the other secured creditors get their cut, then sometimes there can be just nothing left over for the employees. And that's terrible. You've just lost your job; you may not even have got your last pay, so you are owed that; and then you are owed your annual leave, your long service leave and the other entitlements that you might get paid out on termination, such as payment in lieu of notice, but the company itself is out of money.

That's why this scheme matters to working people, because this is a scheme of last resort. It's a scheme that says, 'All right, if the company has gone bust, working people then end up getting at least some of their entitlements covered by public funds.' In other words, the failure of the firm to make provision for the working people that it employs then gets socialised into a loss that the entire Australian public bears. Obviously, I think it would be preferable if firms could make continuous provision for their employees' entitlements and we wouldn't be asked as a nation to pay entitlements that should be paid by the firm. But of course it's not a perfect world, and there are situations where firms are going to go broke.

This situation, though, that I've described, where a business goes broke, the bank or the other secured creditors get their cut and then there is nothing or only a tiny fraction left over for the employees, really is all too common in Australia. I know that, recently, the government pursued measures to make the insolvent trading provisions less strict, and the argument for that was an argument that had been supported by the Productivity Commission, which said that, if you could give directors less risk, then they could do more to trade out of trouble and the benefit for everyone would be that the company would still exist and the employees would still have their jobs. I was very pleased to support some sort of safe harbour to allow that to happen, but what the government did and what the government created went further than the recommendation of the Productivity Commission report in relation to a safe harbour. It was a more extensive provision. Labor raised concerns about that, at the time, in the Senate, but, ultimately, the provision was passed, and we have a situation now where there has been an erosion or reduction in the strictness of the insolvent trading provisions.

What that means, of course, is that the risk, when it gets taken off the shoulders of directors, has to fall somewhere else, and, in a regime where there are employees and other unsecured contractors or creditors—it might be a small cleaning firm, for example, that isn't a secured creditor but is a bit out of pocket because it gets paid in arrears—the risk is now, in part, falling onto them. That makes it even more important that the people whose only source of income is the employer for whom they work have some form of protection.

So I welcome the strengthening of this scheme. It is important that people are not left destitute when they lose their job. It might be the failure to pay redundancy pay. It might be the failure to pay notice. It might be the failure to pay annual leave or long service leave. If you've just lost your job and maybe didn't get your last pay either, a lot of people in that situation are in incredibly dire straits. They've got to turn to unemployment benefits, and then they've got to think about what they can possibly do to get the money that they are lawfully entitled to but which they haven't received. That is why this scheme is important, as I say.

I do welcome some of the changes in this bill that the government is bringing in. They're part of the announcements that we made, the policy that we had, in relation to looking at cracking down on phoenixing behaviour—phoenixing, of course, being the deliberate misuse of the corporate form to avoid your obligations to employees and other creditors. But this goes beyond phoenixing because it goes into situations where firms might have had the best of intentions but ended up going broke for whatever reason. This is important to those firms. A lot of those firms see their employees as family. They don't want to do the wrong thing by them, but sometimes, even with the best of intentions, you go broke. So this is important in that situation as well.

I think it is very sensible to change the provision about arrangements aimed at avoiding paying entitlements—to move from being one solely resting on intent and moving to recklessness. This is the phoenixing situation where you make an arrangement to avoid entitlements. I always thought that the requirement to demonstrate intent was pretty tough, as, obviously, you're trying to bring a case about what was in the mind of the people leading the corporation. The new threshold of recklessness will make it more workable. So I congratulate the government on doing that.

I do worry, though, about a point that has been made by some of the other speakers in this debate around who will have standing to bring a proceeding under the existing provision or who will have standing to seek compensation under the new civil provisions that are being inserted by this bill. As I understand the bill, the people who will have standing are some regulators and the employee themselves. But what's missing from that is the employee's union. As an employee, if you've just lost your job and maybe haven't got your last pay, haven't got your redundancy, haven't got your notice, haven't got your annual leave and haven't got your long service leave and you don't have savings, as a lot of people don't—a lot of people are living week to week—you're in no position to personally bring legal proceedings to enforce your rights to seek compensation. You are just not going to be able to afford to do that. That means that, unless the union has the standing, you have to rely on the regulator.

Even the best regulators in the world don't have unlimited funds. It's our job in this place to give them the right level of funding but we can never give them unlimited funding. So there'll always be priorities when it comes to regulators. We shouldn't as a nation expect working people to have to rely on the goodwill of regulators or the willingness of regulators to bring proceedings and we also shouldn't want to spend our nation's money on regulators having to do everything when there is a body of people out there who have the capacity to do it—in terms of ability and their specialist knowledge—but not the right.

One way to do this is to allow unions to bring these proceedings. You might ask, quite reasonably, why the union wouldn't just represent the worker, with the worker bringing the proceeding themselves. It is because a lot of people in unions who would do this sort of work are not necessarily lawyers who'd be able to represent a person in that way. But the unions themselves have rights of appearance in the Federal Circuit under the legislation. So, if they were able to do it, that would be a win-win. It would be a win-win-win, really. It would be a win for the public, because public funds wouldn’t be expended on the bringing of proceedings; it would be a win for the worker, because they would be represented rather than having to self-represent or shell out for a private lawyer at a time when they've just lost their job and haven't had their entitlements to paid; and, frankly, it would be a win for the court. The Federal Circuit Court already has a lot of self-represented litigants, and that slows down the administration of justice. The court wants to make sure that the litigant gets a fair go, but of course the person rolling up to court for maybe the first time ever doesn't know how it works. You are not going to know how it works in a court if you've never been to a court and suddenly you're in this situation where, through no fault of your own, the firm you've worked for, perhaps for a long time, has gone belly-up.

So it would make sense to allow registered organisations, trade unions who represent working people in commissions and courts all the time and have recognised rights under the law to appear in the relevant courts, to bear the cost of bringing these proceedings—to spend the money on doing it through their expertise that they've already developed in industrial law and related legal issues through representing people in tribunals and commissions for years. It would certainly make sense for the working person themselves, instead of having to find the money for a private lawyer or instead of having to turn up and run the race in a really unfamiliar and alien scenario with an overworked judge who has 300 cases on their docket—and they might range from migration, to bankruptcy, to human rights, to industrial relations, to family law. Rather than having to turn up to see a judge who is already overworked and who is then trying to help them to make sure that they get access to justice in a meaningful way, it would just make sense to allow workers to combine together, put their money towards an organisation that will be able to represent them and allow that organisation to do what it's meant to do, which is to represent those people. I do think that is an omission in this bill. I don't think this is an ideological question. It doesn't go to the questions of unions going on strike, unions' bargaining rights or any of that. It just goes to the question of what would be the most efficient way of ensuring that the people on whom you are conferring rights can actually exercise those rights? There is no point having a right that you can't enforce. You can have all the rights in the world, but if we don't have the capacity to enforce them then they're meaningless.

This law shouldn't be meaningless; this law should help people in their darkest hour, when they have lost their job. It is terrifying to lose your job. It's terrifying when you boss comes in and says, 'I'm really sorry. This firm does not exist anymore. I'm shutting the company down. I know you've worked really hard. It's devastating for me. I see you as my family, but I have to shut it down. We've gone broke.' That is a terrible time in your life, whether you're the boss or whether you're the worker. To have a situation where there are some rights that could be exercised if only there was the ability to exercise them, but the law just leaves it a little bit short, would be incredibly frustrating. That could be fixed in a fairly straightforward manner.

Most of these provisions in this bill will really go some way to improving this scheme. It is, in my view, quite sensible to think about other ways in which we can ensure that the loss that arises when a business goes broke is fairly attributed so that people fairly carry the burden of that loss. I think there are legitimate questions about the extent to which employers should bear the loss, employees should bear the loss, small creditors should bear the loss, banks should bear the loss and, for our purposes, the public should bear the loss. This scheme is really an admission that, despite the best of intentions, there will still be situations where the loss falls on the public to ensure that people are not ripped off when a business goes broke.

Some of that is about dealing with phoenixing. Some of it is about dealing with insolvency generally. All of it is about making sure that people are not left out of pocket, with their entitlements ripped away, in a situation that is completely outside of their control and outside of their responsibility. They may have been an absolutely model employee and yet they find themselves in a situation where they are without a job—and for various reasons, of course. Maybe it was technological disruption that sent the company broke, maybe it was poor management that sent the company broke or maybe it was deliberate phoenixing to rip people off that sent the company broke. I believe that we would all agree that's the minority of corporate insolvencies in this country, but we also can't ignore that it happens.

There is a very strong bipartisan view that we need to do more on phoenixing. We've been critical about some of the delays from the government in responding to the issue of phoenixing. We've called for measures like this one for some time and other similar measures, like the director identification number. The director identification number is incredibly important to make sure that people can't just have different records on the ASIC database and get around the law through administrative means. I believe that everyone in this place would like to see an end to deliberate phoenixing, deliberate rorts, deliberate rip-offs and deliberately ripping off the people who are employed, the small cleaning contractor, the small security firm or whoever has provided services on a payment-in-arrears basis.

It's also about that much broader perspective of looking at a situation where we have an economy in which, quite rightly, we seek to remove the barriers to new businesses starting. We don't want to have anticompetitive rules and regulations in place that make it harder to start a business or make it harder to run a business. But the quid pro quo of that is the issue of corporate insolvency, including small business corporate insolvency, and where the loss and the risk falls as a consequence of that corporate insolvency. That's something that we have to keep addressing in making sure we protect the most vulnerable.