Company directors will soon need identification numbers
To help protect businesses from phoenix activity and its annual cost to the Australian economy of up to $3.2bn, the Federal Government will introduce legislation requiring company directors to have identification numbers.
To deter phoenixing, where a director transfers assets of a financially stricken company to a new company that continues operating the business, unique director identification numbers (DINs) will be lodged in a central register. This will enable a range of government agencies to track the business activity of every company director in Australia. For further articles on phoenixing go to http://macksadvisory.com.au/ and type “phoenix companies” in the search field.
Draft DIN legislation, which the Opposition is expected to support, has been released by Treasury – a new initiative we believe will go a long way towards decreasing fears expressed in last month’s newsletter about the effectiveness of the government’s anti-phoenix reforms.
How it will affect directors
When enacted, the legislation will require new company directors registered under the Corporations Act (or the Corporations Aboriginal and Torres Strait Islander Act) to apply for an identification number within 28 days of becoming a director. Existing directors will have 15 months to apply from the new law’s gazetted date.
There will be civil and criminal penalties for failure to apply, and regulators may also initiate infringement notices.
It appears only appointed directors and alternate directors will be affected by the proposed new law. De facto or shadow directors won’t be expected to apply for a DIN.
Currently, false information given to the Australian Securities and Investments Commission (ASIC) -- about the name and date of birth of a director for example – makes it extremely difficult for the Commission and other regulators to track wrong doers and bring them to justice.
Yet there are concerns about reforms
Macks Advisory is aware of concerns expressed about the proposed reforms being “an impost on business and difficult for directors’ t o comply with”; also about the cost of DIN registration, likely to be up to $40.
University of Melbourne Law School Professor Helen Anderson says rather than seeing the proposed scheme as “red tape”, business operators should instead view the one-off payment for a DIN as an investment in protection. She says DINs required to be shown on many a document will guard the integrity of legitimate business owners and stop them “having to compete with fraudsters and other crooks”.
General manager of technical policy at the Institute of Public Accountants, Tony Greco declares there has been wide criticism of lax rules for directors’ functions. He claims additional rigour is clearly necessary, and says that people who complain about “red tape” should weigh their concerns against the benefits of reform for not only to themselves but the business community as a whole.
The comparable CPA office holder Paul Drum’s view is that although the proposed legislation seems “appropriate” his organisation nonetheless will look at its detail in a review of the Bill before its introduction into the Federal Parliament.
New regime for registers
A Treasury statement says a major aim of the reform is “modernisation” of federal business registers to create a regime that will merge two existing databases used to compile ASIC’s 34 registers of companies, and the Australia Business Register (ABR), now overseen by the Commissioner of Taxation.
Treasury says it is proposed the new database for a single central register will be “flexible, technology neutral, and governance neutral”, and will be overseen by an existing regulator yet to be determined.
Macks Advisory’s understanding is that this simplification of the register regime would in fact do away with much existing red tape, to speed and make easier detection and pursuit of wrong doers. Although existing registers are linked, they can’t effectively “talk” to each other because their updating isn’t synchronised. For example, at any one time, information on an ASIC register may not correspond with information about the same person or company held by the ABR.
The urgent need for government agencies to be able to keep track of someone’s life as a director and thus curb phoenix activity that is crippling innocent businesses and the economy generally, was encapsulated in what the Commissioner of Taxation Chris Jordan told a Senate committee member earlier this year.
Mr Jordan said: “I could now appoint you as a company director without you even knowing, and me then controlling the company.”
