Here come Director IDs. Now is the time to apply for yours
Companies and directors are required to plan and to get their Director ID paperwork sorted with ASIC, so the new scheme can be fully operational by next year.
By Jim Vass
What are Director IDs?
As of November 2021, Directors will now be required to apply for a Director ID prior to being appointed. A director ID is a unique number, an identifier that a director will apply for once and keep forever. Directors will need to apply for their ID themselves because they will need to verify their identity.
The new scheme follows amendments to Treasury Laws (Registries Modernisation and Other Measures) Bill 2019 which passed through Parliament in June.
The new legislation introduced a new Commonwealth Modernising of Business Registers (MBR) regime, to manage Director IDs and perform other functions. These director IDs will be kept permanently and will record a director’s profile and board responsibilities over the full course of their career.
Consolidating information
Also under the new legislation, all registry functions (the establishment, maintenance and use of registers) will be appointed to one single Commonwealth Business Registrar, to be administered by the ATO — with 34 ASIC registers (including the Companies Register) and the Australian Business Register to be consolidated in one place.
ASIC will still play a critical role in regulatory functions such as monitoring and enforcing laws.
However, the new system will tighten the process for the registration of directors and also help to stop directors being appointed to companies without their consent.
The legislation also outlines several civil and criminal penalties for
- Failing to apply for a director ID within the required timeframe.
- Deliberately providing false identity information.
- Intentionally providing a false director ID to a government body or relevant body corporate.
- Intentionally applying for multiple director IDs.
Tracking illegal phoenixing
The new scheme follows a report released in 2017 by Monash University, which showed that Phoenixing companies is relatively easy, cheap, and lucrative — and what’s more — has been able to remain ‘largely invisible’ in Australia.
Phoenixing costs the Australian economy billions of dollars a year. It occurs when a director strips cash and assets before hiding them and liquidating the company, then restarting the company, usually under a different name. The new business “rises from the ashes of the old one” like a Phoenix. Typically it is done to avoid paying money to creditors or the ATO.
Another practice that has been relatively common in Australia is to remove legitimate company directors and replace them with ‘dummy’ directors, who plead ignorance when liquidators begin to ask questions about the circumstances of the company’s failure.
The report recommended the introduction of Director IDs, as did the Federal Government’s Black Economy Taskforce which was established several years ago to stamp out dodgy and illegal activity. It has taken the Federal Government some time to consider and develop the new scheme and to update legislation.
Long term benefits of Director IDs
For many businesses, right now, the new requirements will seem like an additional burden added to the ever growing ‘to do’ list at a critical time in the pandemic when there is already so much to consider and prepare for.
But, even though the timing is ‘off’, in the long run, this scheme has the interests of ethical business at its core, and it is a good thing. And right now, there is understanding at a Federal Government level that businesses may need some lee-way in the deadlines.
Over the coming 12 months an individual who is appointed as a director will have 28 days to apply for a director ID. For existing directors, transitional provisions will apply, providing a 15-month window to apply once the new requirement is mandated.
The other significant benefit for business in the long term will be the single database, which should reduce duplication when dealing with these separate agencies and eventually shorten the time and administration businesses have traditionally spent dealing with numerous government departments.
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