Director Identification Numbers
The Australian Government is taking a further step towards improving the efficiency of Australian business and the accountability of directors running businesses by introducing unique identification numbers for directors.
The main purpose of the introduction is to reduce “phoenix activity” which the Government estimates is costing the economy up to $3.2 billion a year. Phoenix activity is the process of stripping a company of its assets then liquidating that entity, leaving creditors with no assets as a way of recourse, whilst at the same time creating another entity to which the assets are transferred for little or no consideration and then carrying on the same business. Effectively the new company is taken to have risen from the ashes of the old company, hence the term “phoenixing.”
To obtain an identification number, directors will be required to submit personal identification documents to the Australian Securities and Investments Commission (ASIC). This additional process will assist in reducing intentional or unintentional errors in the ASIC register and in correctly identifying the relevant director.
Although reducing phoenix activity is the main goal of the director identification number, there will no doubt be flow on benefits in relation to accountability and efficiency through being able to identify and prosecute director related offences which undermine Australian businesses.
One area of focus is the underpayment or non-payment of compulsory superannuation contributions. Industry Australia estimated in a 2017 submission to the Senate Economics Committee that the annual shortfall of superannuation paid to employees is $5.6 billion. The Government has recently released draft superannuation compliance bills for consultation, which, if implemented could see employers who fail to pay superannuation entitlements subject to financial penalties and up to 12 months’ imprisonment. The director identification number will be a useful tool to regulators in identifying and tracking employers and their respective directors associated with this type of misconduct.
The introduction of director identification numbers is a welcome improvement to Australian business and will improve regulators data matching abilities in identifying and removing the small number of directors who do not observe their duties. The intended impact of the introduction is to improve the efficiency and accountability of Australian business.
If you or one of your clients are uncertain about the new changes and what impact they have, it may be time to seek professional assistance. PKF are available to provide expert advice. Remember, the earlier that professional advice is sought, the more successful the outcome is likely to be.