SOAP BOX: Phoenix' thumb noses at watchdogs without teeth

SOAP BOX: Phoenix' thumb noses at watchdogs without teeth

A recent survey of ARN readers has given us a clear insight into what information the channel finds most relevant to keeping them successful. A vast majority of survey respondents said that among the most highly valued stories are those that expose businesses and business practices that threaten the "level playing field" necessary for a healthy IT market.

While it's a tough call to label one particular business as "dodgy" or their business practices unethical, occasionally the facts speak for themselves. When the government gets defrauded, when consumers buy unprotected or when other businesses are trying to compete with unscrupulous traders that avoid tax, something needs to be said, and more importantly something needs to be done.

It is becoming increasingly apparent that not enough is being done on the part of our corporate watchdogs. It's a story we are reading about more and more in the mainstream press - the unthinkable accounting glitches of the likes of Enron, HIH, One Tel and WorldCom. That same irresponsibility is being passed down the food chain to small businesses and the channel hasn't been spared.

Recent controversy over Melbourne wholesaler Z-Tek Pty Ltd is a case in point. Here we have a group of people that have previously been charged with pirating software and defrauding the government of sales tax. They have also left a significant number of resellers in the lurch with a botched warranty scheme. When forced into liquidation by a creditor, records were destroyed and stock was stolen. Warehouses went up in flames under suspicious circumstances. Now the very same people are opening up new businesses all over South Australia and Victoria as if nothing had ever happened. It all seems so easy - it appears that somebody at fellow Victorian wholesaler Centronics, also in liquidation, has tried their hand at some of the same tricks.

The Australian Securities and Investment Commission (ASIC) and the Australian Taxation Office (ATO) are not keen to talk to the press about whether they are investigating such practices. They claim that if they were investigating the perpetrators, admitting so in the press could blow their cover. If they are not, a journalist would be obliged to ask "why not?"

ARN has been told that ASIC offered some assistance to the liquidators of both Z-Tek Pty Ltd and Centronics to search for stolen stock. Alongside ASIC, both the ATO and Victoria's law enforcement agencies (the fraud unit and criminal investigation unit) have also been briefed on the issue and involved themselves on some occasions.

But other than this limited interference, it looks like plain sailing for the former directors of Z-Tek, despite the fact that their involvement in running the new IT Warehouse and Olympic Technology businesses is a violation of the Corporations Act. This is also despite the overwhelming amount of evidence liquidator Andrew Dunner and Associates can provide to any regulator wishing to stamp out such phoenix operations.

Dunner is confident the regulators will eventually act and he encourages those members of the reseller community who are upset by the matter to contact ASIC and voice their complaints. As a practitioner, he and his peers met with ASIC 18 months ago and were promised a speedy response to any queries if administrators and liquidators got their paperwork in early enough. With Z-Tek, he did not receive any warning.

Dunner said the amount of directors banned or prosecuted through regulators like ASIC has steadily declined, yet white-collar crime is on the increase. At first glance such a notion seems nonsensical, but one could easily imagine most of ASIC's resources being tied up with trying to act on the HIH, One Tel or Ansett fiascos. Dunner guesses that such a strain on resources keeps the regulators distracted and unable to cope with the smaller, quieter, but equally unscrupulous business people.

"The fact of the matter is these corporate watchdogs are supposed to be here to help," he recently told ARN. "They are supposed to keep everything fair and keep everyone honest. But it seems like many companies can get away with abusing the system unnoticed."

One can only conclude that if we don't have a case of watchdogs without teeth, we certainly have a case of watchdogs without enough teeth.

Send your opinions on the matter to And if you feel strongly enough about it, voice your concerns to ASIC on 1300 300 630 or call the ATO on 1800 060 062 regarding any tax evasion related issues.

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