CFMEU Calls for Insolvency Trust Scheme 4

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Monday, September 7th, 2015
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Mark Stevens may not be known to many people, but the company that went bust and consequently changed the course of his life is well known in the construction industry.

Mention Walton Construction in Queensland and many people know all too well of the company’s downfall that took too many people under.

Stevens, who ended up homeless after losing everything as a result of the Walton Construction collapse, was featured on the ABC earlier this year. He lost his business, his home and his family as a result. He is one of the 1,300 unsecured creditors who are owed millions of dollars by Walton. As unsecured creditors, they stand a 90 per cent chance of receiving nothing.

Unfortunately, this is not an isolated case. Corporate insolvency in the Australian construction industry accounts for one in five insolvencies in Australia. The most conservative estimate is that insolvent companies in the industry had a total shortfall of liabilities over assets for their creditors of $1.625 billion in the 2013-2014 financial period.

The cost to the community in unpaid taxes ($487 million in 2013-2014) the loss of wages and superannuation to workers ($137 million) and the devastation on families and communities is why the Senate Economics References Committee decided to launch an inquiry into this problem.

The Committee was in Brisbane to hear personal stories from workers and subcontractors in Queensland – among them the victims of Walton’s collapse.

You might think the loss that many workers and small businesses in Queensland have suffered is simply bad luck in a tough industry, but upon scrutiny, it’s clear that this is an area of unethical and unlawful behaviour that has been going on for many years.

Walton’s is a case in point. The company continued to trade and obtain licences from regulators despite being in serious financial trouble for 12 months. In 2013, accounting firm Deloitte found that the company was holding onto money that it owed subcontractors in order to stay afloat.

An investigation by the ABC uncovered that the Queensland Building and Services Authority (QBSA) threatened to suspend Walton’s licence due to their failure to comply with their financial obligations and that they were technically in breach from May 2012.

Days before the collapse of Walton, the majority of their assets were shifted to Peloton Builders, which happens to employ many former senior Walton officials and is in the name of former Walton’s owner, Craig Walton.

Meanwhile, the unsecured creditors, Mark Stevens among them, are still waiting for their money.

What this case demonstrates is that under existing laws, companies and their directors can and do breach civil and criminal laws with no accountability for their actions.

Unscrupulous operators deliberately abuse the corporate form to defeat legitimate creditors. It is clear that the existing legal machinery and enforcement processes have failed the businesses and workers who do the hard yards and erect our buildings and infrastructure.

There is an urgent need to reform the industry to deal with insolvencies at a national level. As a major contributor to the economy, this problem damages the industry and the effects reverberate across the economy.

The CFMEU is calling for a trust scheme similar to the one recommended in the 2012 Collins inquiry in NSW – where payments from the principal downwards must be made into separate bank accounts and then held in a series of trusts.

The union wants amendments to the Corporations Act and supports the use of director disqualification measures in circumstances where there has been a deliberate use of the corporate form to avoid creditors.

We believe consideration should be given to the question of personal liability of directors for unpaid employee entitlements.

The CFMEU also supports a law which requires mandatory capital investment or a security deposit for directors of new companies who have been insolvent in the past.

Changes to the law are not enough. We need a well-resourced regulator. The Federal Government must increase ASIC’s funding so the corporate regulator can do its job.

The Economics References Committee report states that ‘it would be unrealistic to expect that ASIC could be funded at a level where all breaches or allegations of misconduct were pursued.’ However, the cuts to ASIC’s funding in 2014 by around $120 million and the loss of 209 staff will make matters worse as the regulator is forced to reduce proactive work.

Without a well-funded regulator and legislative change, unscrupulous operators will continue to rip off small businesses, workers and taxpayers without any repercussions.

For many years, the union has assisted workers and small businesses alike in their efforts to recover money from companies that have gone bust. We have witnessed the intense pain and frustration by those who have carried out work and not been paid for it and the difficulties of recovering what they’re owed. It is nothing other than theft.

There is a basic principle that those who perform the work should be paid for it. It’s not just the union, but the community that quite rightly expects that laws are in place to ensure that happens.

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4
  1. lou sarri

    Agreed , Dave lets`s start with the CFMEU setting an example and incorporate so you and your organisation is subject to the same laws under which all businesses should operate . May be even pay some tax !

  2. A number of these measures appear to be sensible, especially the security deposit idea for directors of companies who have become insolvent in the past.

    Whilst the general thrust of a construction trust scheme should be welcomed, the NSW scheme only applies where the value of the contract between the principal and the head contractor exceeds $20 million – which by the government's own acknowledgement was a tiny percent of projects. To have a really effective scheme, the threshold has to be set at sufficiently low levels so as to apply to a substantial portion of commercial building projects.

    Whilst there is certainly some merit in looking at director's liabilities, caution should be observed in this area as Australia should want to encourage the best and most qualified people to take directorships (especially in the case of public companies). Whilst directors do (and should) face reasonable levels of obligation in their role, it is important to ensure rules are not more onerous than need be the case.

  3. Les Williams

    "In the Construction Industry, success comes as a result of your ability to use other peoples money" Quote from the Collins Inquiry Final Report.

    The 2014 amendments to QLD's BCIPA have ensured that will continue for main contractors. What should be of great concern is that these amendments are being promoted as model legislation in other states.

    To be successful in bringing about the necessary SOP changes needed in the industry we need to identify and prevent the influence that has sought and gained preferential treatment and prevented change in the past.

    I agree with recent commentary that the Australian Construction Industry needs a complete rethink ensuring a vibrant and ethical industry devoid of the unscrupulous activity that runs rampant currently.

    We must ensure however that the "rethink" is not subject to the same improper influences that seeks preferential treatment for one industry sector that has plagued the industry in the past.

    A National approach to the industry is required.

  4. lsarri

    Start with corporatising the CFMEU and make them accountable also .
    Craig Walton should be prosecuted and restitution made to the creditors of his previous company. QBSA is incompetent or too lenient ? Peloton should be banned from tendering on any level of government projects