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New DIN laws will help stop ‘insidious’ phoenix activity
All Australian company directors must now apply for a unique identification number which aims to tackle phoenix activity and ensure better corporate transparency.
Tony Zhang
Creevey Russell Lawyers said forcing all new and existing directors to apply for a unique identification number will help stop phoenix activity which has reportedly cost the Australian economy billions of dollars a year.
“Phoenix activity is where a new company is created to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements,” Mr Creevey said.
“It’s estimated to cost the federal government $600 million a year while the Fair Work Ombudsman estimates its [costs] the Australian economy up to $3.19 billion a year.
“If the requirement for all directors to hold a DIN [helps restrict] this insidious and prevalent practice, then it must be seen as a good thing.”
The bill – introduced into Parliament in December last year – provides the legal framework for Director Identification Numbers.
Following the passage of a legislative package introducing a new Commonwealth Modern Business Registry Regime, all directors will need to prepare to be issued with unique director Identification Numbers (Director IDs).
The Director IDs will be kept permanently and provide traceability of a director’s profile and relationships across companies over their career.
Assistant Treasurer Michael Sukkar told Parliament that Director IDs will “provide greater insights to regulators, businesses and individuals on the identity and affiliations of directors and prevent the use of fictitious identities”.
Mr Creevey said the DIN regime is expected to take effect in the first half of 2021 following the recent passing in Federal Parliament of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019.
Under the changes, directors of bodies registered under the Corporations Act 2001 or Corporations (Aboriginal and Torres Strait Islander) Act 2006 will be required to apply to the registrar for a permanent, unique Director Identification Number. Each director will keep this identifier, even if they cease to be a director, and the same identifier will not be re-issued to any other person.
“The DIN can trace a director’s relationships across companies, including failed companies, and is aimed at preventing the use of fictitious identities,” Mr Creevey said.
Critically, a mandatory identification system also presents an opportunity to address one of the longstanding privacy concerns from directors – personal information held on publicly accessible corporate registers.
The Australian Institute of Company Directors had stated that the availability of detailed personal information about directors creates unnecessary risks in terms of safety, identity theft and privacy.
