ASM Exclusive by Adeline Teoh.
When a business goes bust and liquidates, who do you expect to get burnt? The directors perhaps, or its creditors. But that’s not what’s happening in the security industry: staff are being pushed aside for profit and there’s little they can do, as directors shed the debt and move on.
In mid-July last year, the Security Licensing & Enforcement Directorate (SLED) section of the New South Wales Police Force received a submission about a security company that had so many guises it put Sherlock Holmes to shame.
According to the material retrieved, a securitycompany registered as Avessta Management Solutions and a string of failed security businesses, including Perpetual Resources Group, All Ace Security, and MAS Venue Services, had the same two brothers as directors, appearing to alternate as licensees.
A check using the Australian Securities and Investments Commission (ASIC) database, via information broker CreditorWatch, currently lists Perpetual Resources Group as ‘Under External Administration and/or Controller Appointed’. How then, could they start another company while Perpetual Resources Group was struggling?
The SLED case did receive some attention from the NSW Police. Cameron Smith, the NSW Police Force’s SLED director told ASM that when the SLED received allegations that the company was continuing to provide security services despite having its licence revoked, they wrote to the company’s director requesting “the removal of website references to the company that suggest that it is a current provider of security services”. This, as you may realise, is the equivalent of getting a slap on the wrist for a technical breach.
The company’s Dubai operations are still live and its website accessible, safely away from Australian law. There is a loophole in company law that limits the liability of directors (and shareholders) when a company goes belly-up.
Under the Corporations Act 2001, any debts held by the company die with the company. The Act does not, however, stop directors of a failing company from transferring assets to a new, debt free company, effectively absolving them of any previous credit responsibilities. The practice is known as ‘phoenixing’ after the mythical bird that bursts into flames and is then reborn from the ashes.
Labour intensive industries such as security companies that provide guards, for instance, are often ripe for phoenixing because its biggest creditors—employees and contractors—are unlikely to conduct due diligence on their employer.
The SLED submission alleged that Avessta was merely the latest incarnation of a company that had effectively been liquidated and reborn three times to avoid paying more than $1 million to employees and contractors, suppliers and the government for wages, entitlements (including superannuation and leave), invoices and tax.
The official regulators in this game are unfortunately somewhat limited and uncoordinated in their powers.
The SLED, for example, only has powers to refuse or revoke a business’ master security licence, while ASIC oversees phoenixing and the Australian Tax Office pursues claims of tax evasion. The Fair Work Ombudsman may also intervene in the case of unpaid staff.
“There are no phoenixing related offences under the NSW security industry legislation,” says Cameron Smith. The legislation does, however, provide grounds for revocation or refusal of master licences.
According to Clause 16 of the Security Industry Regulation 2007, an individual may be refused a master licence if the applicant or a close associate of the applicant has been involved in the management of a corporation that “was the subject of a winding up order or when a controller or administrator was appointed” within the preceding three years of the application “unless the Commissioner is satisfied that the person took all reasonable steps to avoid the liquidation or administration”.
It is mandatory for the commissioner to refuse to license a corporation that has been under administration within three years.
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