25th October, 2021
New legislation that requires all company directors to apply for a Director Identification Number is being phased in from November 2021.
Becoming a company director has never been a decision to take lightly. It involves taking on extensive legal obligations, having responsibility for the governance and strategic direction of an organisation and final accountability for its activities and performance, good or bad.
Most directors will attest to taking their responsibilities seriously, acting with good faith and diligence in the best interests of the company.
But there are cases where directors and owners choose to take advantage of the ‘corporate veil’ that protects them from personal accountability should their company fail.
By transferring existing assets to a new company to continue trading and leaving the unpaid debt with the old company, such operators are participating in what’s termed ‘illegal phoenix activity’.
Until recently, addressing the problem of phoenixing was particularly difficult due to the Australian Securities and Investments Commission (ASIC) not verifying the identities of registered directors. This allowed individual directors to have multiple records with different names, addresses and other personal details, making it difficult to identify those involved in illegal activities.
Now the Corporations Act 2001 has been amended so that every director will now be required by law to have a Director Identification Number in a bid to solve these issues around phoenixing and other illegal activities.
The Director ID scheme is designed to be a unique identifier for all new and current company directors that, once registered, will be used to identify them permanently, even if they cease being a director in the future.
Overall, the mechanism is designed to enable regulators to easily trace the movements and relationships of directors across different companies, assisting them in investigating suspected illegal activity.
Part of the Federal Government’s Modernising Business Registers (MBR) program, the Director ID regime is to be administered by the newly established Australian Business Registry Services (ABRS) and managed by the Australian Tax Office (ATO).
You will need to apply for a Director ID if you are (or are planning to become) a director of a:
You will also need to apply if you are acting in the capacity of an alternate director.
The following entities are not required to have a Director ID:
All directors can begin applying from November 2021.
Keep in mind that you will need to apply on your own behalf, as you will need to provide proof of your identity. A third party, such as an advisor, cannot apply for you.
Depending on the date you became a director, the deadlines are as follows:
|Date of director’s appointment||Deadline for application|
|On or before 31/10/21||30 November 2022|
|From 1/11/21 to 4/4/22||Within 28 days of appointment|
|From 5/4/22||Before appointment|
Most companies will not be significantly impacted by this new legislation beyond the application process for existing directors, and the updating of policies and procedures to ensure appropriate identity verification and that a Director ID is issued for new directors.
One anticipated challenge is for companies with directors that are not Australian residents (and therefore do not have a Tax File Number) as the extent of documentation the ATO will require to satisfy their identification requirements is yet to be seen.
Another consideration is if a director needs to be replaced on short notice, as it is still unknown how long the application process will take. One solution is for anyone anticipating becoming a director to apply for a Director ID in advance, however the legislation does stipulate that the Director ID will be cancelled should the person not be appointed within 12 months.
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Non-compliance with the new legislation (including not applying when directed to do so, applying for a Director ID outside the relevant timeframe, applying for more than one, or misrepresentation of your ID, such as providing false details) could result in civil and criminal penalties under the Corporations Act and may even result in imprisonment.
If you’re at all unsure about your obligations under the new legislation, make sure you contact your accountant or business advisor as they are best placed to ensure you and your business remain compliant.
Further information, including details on the application process, can be found on the relevant section of the ABRS website.
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