Company directors required to sign up for identification numbers under new anti-phoenixing scheme

Australian company directors will be required to sign up to a new identification scheme designed to curb illegal phoenixing activity under new laws unveiled by the Federal Government on Monday.

The long-awaited director identification numbers (DIN) draft legislation has been released by Treasury, alongside measures to simplify business registration processes.

The identification measures have been designed to help regulators detect, deter and disrupt phoenixing activity by tracking directors beyond individual businesses through a database of unique numbers.

The database will be administered through a new registry regime also being introduced, which will merge ASIC’s companies register with the Australian Business Register, currently kept by the commissioner of taxation Chris Jordan.

The reforms are not expected to encounter political opposition and have been in the works for some time as part of broader efforts to simplify national business registers and make it easier to track directors.

The government indicated plans to draft legislation under measures outlined in the 2018-19 budget, following a response to a Productivity Commission report into the matter last year.

Director Identification Numbers (DINs) — what the changes mean for you

Under the proposed law changes, new company directors registered under the Corporations Act (or the CATSI Act) must apply for an identification number within 28 days of becoming a director.

Existing directors will have 15 months to apply for the scheme from the date of the scheme starting.

There will be civil and criminal penalties for directors who fail to apply for identification numbers, while regulators may also issue infringement notices to those who fail to comply.

Only appointed directors and acting alternate directors will be subject to the new laws initially, meaning de facto or shadow directors will not be required to sign up.

In 2015, the Productivity Commission estimated illegal phoenixing activity — where a director transfers assets to a new business and then liquidates the old company, only to begin trading the new business — costs Australia between $1.8 billion and $3.2 billion each year.

University of Melbourne Law School Professor Helen Anderson compiled a major research report into policy responses to the illegal activity last year and says she’s delighted the government is acting.

“At the moment there can be false information given to ASIC about the name and date of birth of a director, which leads to great difficulties for ASIC and other regulators in being able to track who the wrongdoers are and bring prosecution,” she tells SmartCompany.

“Don’t see it as red tape”

There is concern about an impost on businesses and directors becoming compliant with the new scheme, with the possibility that a DIN registration could cost between $20 to $40.

However, Anderson says business should consider the positive side of the new laws, namely that they weed out fraudsters.

“They’re just requiring a one-off registration with proof of identity that number will then be quoted on various documents,” she says.

“Don’t see it as red tape, it’s a way of legitimate businesses not having to compete with crooks.”

Tony Greco, general manager of technical policy at the Institute of Public Accountants, was a member of the government’s black economy task force and welcomes the DIN reforms.

“We’re seeing a lot of phoenixing happening in Australia and part of the problem is what most people perceive is lax rules around directorships,” he tells SmartCompany.

He agrees some “additional rigour” is necessary, even if it adds red tape to the system.

“You have to weigh up the risks versus the benefits,” he says.

CPA Australia’s general manager of policy and advocacy Paul Drum says he’s supportive of the reforms, but the accounting body will consider the legislation in more detail in an upcoming review.

“At first blush, the DIN measures look appropriate,” he tells SmartCompany.

Business registers to be simplified

In what Treasury has called a “modernisation” of federal business registers, there are plans to create a new business registry regime which will merge two existing company databases.

These are ASIC’s company’s register and the Australian Business Register, currently overseen by the commissioner of taxation.

For business, this will mean there will be one central register to provide information to, rather than several.

The aim is to simplify things for regulators and businesses by ensuring the new database is “flexible, technology neutral and governance neutral”.

Information relating to 35 existing registers would be subject to the new regime, including 34 registers currently kept by ASIC.

An existing regulator will be appointed to oversee the new register, although there’s no detail yet on which body that will be.

Greco says the simplification will cut red tape in the system while making it easier for regulators to track wrongdoers.

“The unfortunate thing about the [current registers] is that they don’t talk to each other, they link to each other, but some of the data on ASIC is more up to date than what’s on the ABR register,” he says.

“It costs businesses a lot of money to update a lot of those registers.

“If you only have one register to update, you have more chance of it being reflective of what the actual situation is,” he continues.

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