Last month, the Honourable Kelly O’Dwyer MP announced that the Turnbull Government would be introducing new laws in a bid to crack down on illegal phoenixing activities that cost the Australian economy up to an estimated $3.2 billion per year.
What are phoenixing activities?
“Phoenixing” occurs when individuals or entities deliberately strip assets from one company and transfer them to a new company to avoid obligations to pay creditors and liabilities. Accordingly, the name ‘phoenixing’ has been adopted because the new company is said to ‘rise from the ashes of the old’.
Director Identification Numbers and how they will combat phoenixing activities
As part of the package of reforms, the Government will introduce Director Identification Numbers (DINs) as recommended by the Productivity Commission in its Business Set-up, Transfer and Closure inquiry report published in December 2015 (PC Report).
Currently in Australia, an individual is only required to provide ASIC with their name, address and date of birth to register as a company director but is otherwise not required to provide proof of identify documentation. DINs are intended to fill this gap and be a simple safeguard to ensure the identity of company directors whilst avoiding unnecessary increases in the requirements surrounding company set-ups.
Specifically, each director will be issued a unique DIN which will enable ASIC and other government agencies to monitor director registration, collect data regarding director appointments, match data between different government databases, and map various relationships between different company officeholders and companies.
How do you apply for DIN?
The Government has not announced how the DIN system will be administered however the PC Report recommended that DINs be implemented by way of an online registration on ASIC ‘s website which would require directors to provide a 100 point proof of identity check (based on the identification requirements for opening a bank account).
Other measures to combat phoenixing
In addition to the DIN, the Government will consult on implementing a range of other measures to deter and disrupt phoenixing activity. These include:
- New specific phoenixing offences to better enable regulators to take action against individuals and entities who engage in this activity;
- The establishment of a dedicated phoenix hotline to allow the public to report illegal phoenix activity;
- The extension of penalties that apply to those who facilitate and/or promote tax avoidance schemes and phoenix operators; and
Preventing directors from backdating resignations to avoid personal liability or from resigning and leaving a company without any directors.
To find out more about the Government’s proposed reforms and how they may affect you as a company officeholder, please contact KHQ’s corporate and commercial team for a chat!