Act now: Everything business owners need to know about the new mandatory Director IDs

Director identification numbers (Director IDs) will be a mandatory requirement for new (first-time) directors from April 5, 2022. The Director IDs have been introduced to help to prevent the creation of false director identities, mitigate adverse cross directorships and illegal phoenixing activity, and increase director accountability.

All company directors need to meet their legal obligations and apply before their specific deadlines.

What is a Director ID?

A Director ID is a unique identifier that an individual will keep forever. This 15-digit identifier is given to directors who have verified their identity with the Australian Business Registry Services (ABRS).

Directors will only ever have one Director ID, which will remain the same for life and must be registered for each relevant entity they become director of — even if they change companies, change their name, stop being a director or move interstate or overseas.

This identifier will be maintained and monitored on a centralised register to ensure directors are easily traceable and accountable for the current and previous companies they have directed.

Directors will need to apply for their own Director ID for identity verification purposes; no one else can apply on their behalf.

Every director will apply for this once and keep it forever.

What are they for?

Director IDs are the first point of focus for the ABRS, a new government registry service established as a result of the Modernising Business Registers (MBR) program.

The ABRS combines 30-plus government registers into a single platform, improving the efficiency of registry service transactions. It makes it easier for businesses to meet their registration obligations and increases the utility and reliability of business information.

By implementing the IDs, ABRS is taking a long-awaited step forward to obtain a holistic view of a director’s corporate history and conduct, moving away from outdated systems susceptible to financial misconduct.

Who needs a Director ID?

All current or future directors of a company, registered foreign company, registered Australian body or Aboriginal and Torres Strait Islander corporation will need a Director ID. Sole traders are exempt.

What will happen if business owners don’t act now?

Directors appointed for the first time between November 1, 2021 and April 4, 2022 need to be on top of the impending changes, with only 28 days to apply for their unique identifier from their date of appointment.

Directors appointed from April 5, 2022 onwards must apply for a Director ID before their appointment to avoid penalty.

If you became a director on or before October 31, 2021, you have some extra time to apply, with submissions due by November 30, 2022.

With the impending deadline for new and recently appointed directors right around the corner, now is a good time to get organised and submit the relevant paperwork. Forgetting to apply will be a costly error, classified as a criminal offence if application deadlines are not met.

There are civil and criminal penalties for non-compliance with the new requirements, with ASIC able to take enforcement action according to the four new offences under the Corporations Act 2001:

• Failure to have a Director ID when required to do so;

• Failure to apply for a Director ID when directed by the Registrar;

• Applying for multiple Director IDs; and

• Misrepresenting Director ID.

What will Director IDs do?

1. Create a fairer business environment

   Shareholders, employees, creditors, consumers, administrators and regulators are entitled to know the names and details of company directors, but this information may sometimes be hidden or difficult to find. Director IDs will establish a fairer business environment by improving data integrity and confidence in knowing who the directors of a company are.

2. Increase transparency and traceability

   Director IDs will improve the traceability of directors’ relationships with companies over time, simplifying the process for external administrators tracking directors of failed companies. The ability to effectively track directors as they go from one company to another reduces the risk of directors engaging in unlawful activity.

3. Detect and deter fraudulent identities

   Directors who become bankrupt may sometimes slip through the cracks and continue operating illegally. Director IDs will help prevent the use of false identities, the appointment of fictitious directors, and simplify the detection of previously disqualified or fraudulent directors.

4. Identify adverse cross directorships

   A cross directorship occurs when an individual is found to be the director of multiple companies. When a director has an adverse action registered against another one of their companies, its trading partners may be exposed to the knock-on effects without even being aware of it. Director IDs will reveal cross directorships, making it easier for businesses to identify potential risks associated with each director they work with.

5. Prevent illegal phoenix activity

   Illegal phoenixing occurs when a company director deliberately shuts down their company to escape their liabilities and transfer their assets to a new company. The failed director sets up a new company with slight changes to evade regulators and debtors. Trade creditors are left unpaid, employees lose their wages and entitlements, other businesses are put at a competitive disadvantage and public revenue is affected due to unpaid taxes and compliance costs. Director IDs will play a crucial role in detecting, deterring and disrupting phoenix activity.

How to apply:

Directors can apply for their own Director IDs online using the myGovID app. For step-by-step instructions, visit this page. It’s a free and quick one-time procedure.