- What is a director ID number?
- What is the purpose of a director ID number?
- When will the director ID number be approved through parliament?
Illegal business activity, in particular, phoenix activity, where a company director moves assets from a failing company to a new company (phoenix), to avoid paying outstanding debts of the collapsing business, is costing the Australian economy millions of dollars.
The director identification number system will have huge benefits for government agencies for early detection of this illegal activity as well as providing enforcement rulings.
These reforms are part of the bigger picture to simplify national business registers and have been supported by government and industry associations.
Tracking the rise of illegal phoenix activities
In July 2018, the Australian Taxation Office (ATO) in their report, The Economic Impacts of Potential Illegal Phoenix Activity, estimated that illegal phoenix activity in 2015-16, cost Australia between $2.85 billion and $5.13 billion in total.
It also found that phoenix activity had a big impact across numerous sectors of the Australian economy. It was felt by everyday Australians in unpaid wages and entitlements to an estimated $31 to $298 million, and other trading businesses with unpaid trade creditors of between $1,162 million to 3,171 million.
Lastly, with an estimated $1,660 million being the cost to the government in unpaid taxes and compliance costs.
What is a director ID number?
Under the proposal, all directors of companies registered with the Corporations Act will be assigned a unique identifier, called directors identification number, or DIN for short.
To apply for a one-off DIN, the person must show 100-points of documentation to verify their identity. At present, any person can be appointed as director of a company without them knowing.
How will it work?
Any person who is a company director will be required to register with the Commonwealth prior to taking up the directorship of a company. They will be assigned their own director identification number.
This ID number will be used to register each new director appointed and regulators can use this number to track directors across companies, quickly and easily.
The DIN will limit the opportunities for a company and its directors to engage in phoenixing activities through a database of unique registrations.
Under the proposed law changes, the database will be administered through a new registry scheme, which will see ASIC’s companies register being merged with the Australian Business Register, currently overseen by the commissioner of taxation.
Under the proposal, 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.
New company directors and the DIN
It is being proposed, that newly appointed company directors must apply for a DIN within 28 days of being appointed a director under the Corporations Act (or the CATSI Act) unless they are provided with an exemption or extension by the Registrar.
Existing company directors and the director ID number
Under the new proposal, there will be a transitional period for directors who are already in office. They will have 15 months from the date the new law comes in force, to apply for a DIN.
Once a DIN has been assigned to the director, they must update the company register with this number.
What is the purpose of a director ID number?
The Director’s ID number is designed to create a new business registry scheme, which will see two existing company databases merge – ASICs company’s register and the Australian Business Register, overseen by the commissioner of taxation.
This central register will provide business registry information to allow Government agencies and databases to:
- better oversee the relationships between individuals and entities,
- track directors associated with unsuccessful companies and
- alert them to high-risk individuals and entities.
Reducing phoenix activities will lead to enormous flow-on effects to the economy, in addition to offering greater data integrity and security, accountability and efficiency in identifying and prosecuting director-related offences.
When will the director ID number be approved through parliament?
The 45th Parliament of Australia was prorogued on 11 April 2019. This means that the Bill to which this event has lapsed. For this event to become law, it would need to be re-introduced into parliament.
Treasurer Josh Frydenberg told the Sydney Morning Herald in July 2019 that the government still supports the business registers policy and the director ID idea, though would not commit to a timeline on reintroducing bills to parliament.
“Legislation to make business data current, accurate and accessible remains Government policy,” the treasurer said.
The team at Penguin Management will be monitoring the resurrection of the Bill and its progress. We will inform our clients and all their directors of the upcoming introduction of director id numbers.
Think of budgeting as the road to your future – a budget will drive your business, provide you and management with the invaluable information you need to navigate the road ahead within your means, handle any problems as they come along so you safely arrive at your destination having made a profit. Read our guide – Better Business Budgeting (How To Plan Your Best Year Yet!)
Business Advisor Or Virtual CFO?
Professional advice is always beneficial, whether your business is starting, expanding, growing, or ending. Who do you turn to for this advice? Our blog – Business Advisor or Virtual CFO: Which is Right For Your Business? – should help!
If you have any questions or concerns about the Director Identification Number, please feel free to talk to your Penguin accountant or contact our office here.
Did you find this article helpful? Let us know in the comments below, or share it with your network.