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16 July 2018

Phoenix hotline a good idea but will not protect small businesses

“At the end of the day, a phoenix hotline will not protect unsecured creditors - small businesses – because they are at the bottom of the list of creditors when a company unscrupulously goes belly-up,” the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell said today.

“A phoenix hotline will not directly support these small businesses and individuals.

“By the time action can be taken against companies and their directors, what little money is left will go directly to secured creditors, such as the banks.

“And eligible employees will have their wages paid by Fair Entitlements Guarantee – a legislative safety net scheme to pay employees who lose their jobs due to the liquidation or bankruptcy of their employer.

“One way of protecting some small businesses is to enact John Murray’s building and construction industry recommendations; particularly a deemed statutory trust set up for projects over $1 million.

“Money would be quarantined in a separate legislated account and would not be available for use by the company. It would be used to pay the people who did the work – the subcontractors.

“As we know, the construction industry has a track record of poor payment practices, insolvency and phoenixing, so statutory trusts will go some way to alleviate subcontractors and other small businesses not being paid as the result of phoenix activity.

“We also support a unique director identifier so crooked directors can’t be involved in multiple instances of phoenixing.

“Let’s level the playing field for small businesses suffering at the hands of Australia’s phoenixing and provide some real protection for them, because it’s costing the small business sector a lot of money too.”