A little while back, we were running a claim for a consultant who had done work for some developers who had set up here. We did our usual checks and the debtor company had an office, and a director that appeared to be the real deal of what one would expect of a director of a multi-million-dollar project.
The time came to send them a payment claim. There was no response. At this point I always do a second check of the debtor company, and wouldn’t you know it, the previous director had resigned and was replaced by two other directors.
Based on the ASIC extract information, these new directors appeared to be in their late 80s with residential addresses that were not the kind of addresses you’d expect from people with millions to spend on developments. The office for the company had also been changed to one that I recognised as a serviced office location.
There was no point in going on: we had a case of dummy directors on our hands.
It’s a common issue, chasing your payments from companies that end up worthless or simply go under and rise again the next day; phoenix companies. The federal government has had a task force on this issue for years now and some reforms are on the way that will make a big difference.
Those reforms include:
The introduction of identification numbers for company directors
This will allow the activities of directors to be tracked through multiple government agencies. This means that if a director is sinking his fourth company in three years, the government will know about it. It allows a platform for there to be punishments, or restrictions, or investigations of such events as they now become visible.
A further safeguard being considered is a 100-point identity check for anyone becoming a director. Amazing as it is, you don’t need to prove who you are to become a director in Australia – hence the proliferation of fake names, dates of birth, and addresses. It is not uncommon for companies to note their office address as a vacant block of land in the middle of nowhere. Such changes would stamp this out.
Restrictions on the ability for directors to resign from their companies
This would also include no backdating appointment dates for directors. This will make it harder for directors to jump ship when the creditors start moving in.
The above combine to make the movement from entity to entity more problematic. A contractor will think twice about sinking a company if it is within a regime where one is being monitored and the number of insolvency events one is allowed are restricted. This will make it easier to pursue payments as directors will have to stay put in their companies and either pay or somehow deal with their creditors. They won’t find it so easy to find and install dummy directors either.
Safe harbour provisions for companies in distress
This has the effect of allowing them breathing space to restructure rather than go into administration.
This seems in contradiction to the above but it actually helps by creating a less manic impulse to simply put a company under if it is struggling. It allows the director to stay with the company and restructure it so that it can carry on trading. The idea is to make it more attractive to stay in business than to simply kill the company. This has the benefit of preserving the ability of creditors to pursue their payments, and to keep people employed.
It sounds good in theory, but it may not yield such benefits in the real world. Construction insolvencies tend to be so extreme that most of the time a company cannot be saved or restructured.
At this stage, this is all still pending an actual bill and the passage into law. But it is good to see things moving in the right direction and a long overdue issue finally addressed. This will have a great impact on construction businesses in particular.