Brian Walsh (Galway West, Fine Gael)

I thank the Ceann Comhairle's office for allowing me to raise this matter, which is of some importance to small businesses, ordinary workers and the Revenue Commissioners. Recent years have witnessed the proliferation of what could be described candidly as an underhand and damaging practice by which viable companies deliberately accumulate debt before winding up and starting again as a new entity, leaving a trail of unpaid creditors in their wake. The companies that engage in this practice, in which a debt-free business arises in a new guise from the ashes of a failed entity, are commonly referred to as phoenix companies.

Necessarily, business ventures entail an element of risk. It is inescapable that some businesses will fail. For those who try in business but fail, it is important that supports are in place in order that the risks associated with such ventures do not become so great as to constitute a deterrent against the entrepreneurial spirit which helps to drive and grow our economy. A clear distinction must be made, however, between companies with a genuine inability to pay their debts and those which deliberately contrive to avoid paying debts. I am aware of some cases in which companies have closed for business on one particular evening, owing significant amounts of money to the Revenue Commissioners and small businesses among others. However, the following morning the same directors have opened under the guise of a new company in the same premises debt-free, leaving small suppliers to suffer and leaving the taxpayer to pick up significant bills. The prevalence of this practice and the extent of its impact on the Exchequer should not be underestimated. Last year, the business monitoring agency, BusinessPro, calculated that as many as one in 20 new companies showed classic phoenix characteristics, such as common directorships with their failed predecessors. In many of these cases, pension contributions, wages and moneys owed to small suppliers are left unpaid while accumulated tax bills are left outstanding at considerable cost to the taxpayer. The problem has been identified to the Revenue and approximately 700 phoenix companies are currently the subject of risk focused monitoring to ensure enforcement measures can be taken expeditiously should issues of non-compliance arise again. However, monitoring a phoenix company after it has re-formed and jettisoned its debt is to close the stable door long after the horse has bolted. It is of little consolation to the Revenue Commissioners, unpaid employees who are out of pocket or small suppliers that the unscrupulous directors of a company will find it more difficult to get away with their actions a second time.

Other regulations that purport to safeguard against the activities of phoenix companies include the requirement under company law of a liquidator to report on the conduct of company directors. I am aware of cases of collusion between directors and amenable creditors whose debt is exaggerated to secure greater voting rights in the appointment of co-operative liquidators. In some cases, bogus creditors are created to give stronger voting rights to those who wish to appoint a friendly liquidator. Such practices could be prevented if, for example, an independent auditor were required to verify the authenticity of invoices pertaining to debts in certain instances.

What is certain is that strengthened regulation is required to prevent phoenix type activity by companies in the first instance in the interests of small businesses, employees, ordinary workers and the taxpayer. In these circumstances, I ask the Minister to consider what legislative options may be open to him to strengthen safeguards against this costly and inequitable practice.

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