By Michael Mekhitarian
Federal Parliament is currently considering reforms that would mean company directors are required to sign up for unique permanent identification numbers. What does this mean? And how does it affect you?
At present, the proposed federal director identification laws have bipartisan support.
If the legislation passes, it will mean that these unique numbers can be used to track directors for their entire lives – those of large publicly listed companies, as well directors of small businesses.
The reforms are a recommendation from the Black Economy Taskforce which was established several years ago to stamp out dodgy and illegal activity around the nation.
The directors’ reforms are intended to curb illegal activity associated with ‘phoenixing’, which involves registering a new company to takeover the failed or insolvent business of a predecessor company.
Illegal phoenix activity, when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying debts costs the Australian economy billions of dollars every year. Estimates are anywhere between $2.9 and $5 billion.
So, the registry is a sound initiative. After all, it keeps the honest businesses honest, and ultimately will hopefully make the dishonest businesses easier to find! It really is all about improving integrity and compliance.
But, as with most new government initiatives, there will be a cost for small businesses and a new process to be adhered to.
If and when it is passed, the legislation will mandate that both existing and newly registered directors will be required to obtain a unique ID number which they will keep permanently, even if they cease to be a company director, and there will be both civil and criminal penalties for those directors who don’t comply.
The bill that’s currently before federal parliament is called the Commonwealth Registers Bill 2019. Along with this requirement for director registration, it also sets out a framework for broader reform of Australia’s business registry regime, which will ultimately see the creation of a new database that merges ASIC’s company register and the ATO’s business register.
This single database will provide a more accurate register of businesses and a better overall understanding of the Australian business landscape.
The chief concern, of course, is security of information. But, providing that the two government agencies can get this right, there could be many benefits of having one database, chiefly – and a big win for small business – will be the reduction of duplication when dealing with these separate agencies, hopefully, eventually, also cutting down on administration and time.
No system will ever be perfect, but for small businesses owners who currently spend valuable time and effort dealing with BOTH ASIC and the ATO, hopefully we’ll see some improvements here.
At this point, until the legislation actually passes in parliament, there is no indication of how the new process will be rolled out, or the costs involved, or the timeframe.
We are keeping an eye on this and will inform affected clients of their responsibilities when there’s more information available.