5 Nov 2021Company directors have been given 12 months to apply for a director identification number (known as a director ID number) or risk facing fines of up to $1.1 million.
The directive was recently issued by the government as part of its crackdown on phoenix activities. This is where directors running businesses through companies repeatedly declare those companies insolvent and wind them up, cancelling debts and leaving creditors unpaid.
The same directors then restart the businesses as new companies with different names. (See Illegal phoenix activity, ASIC, August 2021.)
Application deadlines vary based on date of appointment
Existing directors have from 1 November 2021 to 30 November 2022 to apply for their director ID number. New directors appointed from 1 November 2021 to 4 April 2022 will have just 28 days to apply for their ID. After 5 April 2022, new directors will have to apply for their director ID number before their appointment.
Directors of indigenous corporations have until November 2023 to apply for their unique identifier.
Director ID numbers instrumental in curbing illegal phoenix activity
The requirement for director ID was passed in parliament during 2020, but the deadline was announced recently.
There are more than two and half million directors of large and small companies in Australia who will have to apply to register for their director ID number.
The measure is aimed at preventing phoenix company fraud by ensuring directors can be traced across companies. Every year, illegal phoenix activity is estimated to cost up to $298 million in unpaid worker entitlements, $3 billion in unpaid trade creditors and $1.6 billion in unpaid taxes. (See The economic impact of potential illegal phoenix activity, ATO, July 2018.)
It will also prevent the use of false or fictitious names such as Mickey Mouse, Clark Kent, Con Job or Imouta Here.
How to apply for your director ID number
The director ID number will be attached to each director for life, even if they cease to be a director, change their name or move interstate or overseas.
It’s important to know that directors must apply for the ID themselves. The government has set up an online application form on the Australian Business Registry Services website.
You will need to use the myGovID app on your mobile phone and go through various identification checks before applying for a director ID number. This includes providing details of your drivers licence, Medicare card and last tax assessment. While it may be inconvenient, it is free.
Companies can legally be restructured without starting a phoenix company
Under the Corporations Act, penalties for phoenix company fraud include large fines and up to 15 years’ jail for directors and company secretaries.
However, not all company failures involve illegal phoenix activity. The key factor in these situations is whether the director’s intention is to avoid paying debts and liabilities or recklessly harm creditors.
Directors can legally continue the same business activity using another company in what is referred to as a “company restructure”.
If your company is in financial trouble, it is wise to get legal advice to ensure you are complying with your legal obligations and acting in the best interests of the company and its creditors.
For more information please see Lifting the corporate veil and Warning – directors duties still apply when touting for business overseas.
