Assessing the legislative framework
Overview of Part II
Part II addresses the adequacy of the current legislative and
regulatory framework to reduce the level of insolvency in the construction
industry and to curb illegal phoenix activity. At the outset it is important to
note that this framework must balance two competing goals: promoting investment
and protecting participants from unscrupulous operators.
It is also important to note that regulation cannot prevent all
insolvencies and the regulators cannot stop every instance of illegal phoenix
activity. As Associate Professor Michelle Welsh explained, illegal phoenixing
'is easy, cheap and not transparent'. As such, '[e]ven if the regulators'
funding were increased by multiples, they are never going to be able to catch
and take enforcement action against everyone who engages in this type of
Rather, regulators—and regulation—need to be smart.
Time and time again the committee was informed that the key
element in combating illegal phoenix activity and insolvencies more generally
is information in the form of 'real time data'. Information is critical for
both regulators, who need to stay informed,
and participants in the industry, who need to be made aware of their rights and
obligations under existing legislation.
At the same time, witnesses before the committee largely
considered that legislative reform is necessary.
For example, Mr John Chapman, the South Australian Small Business Commissioner,
noted that despite the current legislative framework, small businesses are
continuing to suffer the brunt of the insolvencies in the industry. As
Mr Chapman noted further, these small businesses are, generally speaking,
not the cause of the insolvency but collateral damage.
In light of this assessment, the committee accepts the need for additional
legislation and regulation to protect small businesses, employees and
subcontractors. The critical question is: 'What should that regulation look
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