Company directors will be compelled to register for a lifetime ID number or face penalties including a year in prison under a Commonwealth plan to fight phoenixing activity.
Support for company ‘director identification numbers’, known as DINs, has long been held by both sides of politics and the small business community. However, it’s only this week that consultation opened on draft legislation for the scheme.
The policy would compel all company directors to register with the Commonwealth. Their identities will be verified by a registrar who would create a unique identifier that will stay with the director for life, even if they move onto other companies.
The DIN scheme was born out of recommendations from the Black Economy Taskforce, which put the value of the ‘black economy’, or cash that flies under the radar of the tax office and regulators, at $50 billion.
The director ID is designed to fight illegal phoenix activity — the practice of liquidating a business and transitioning assets to a new entity so a company can avoid having to pay tax and debt liabilities.
Illegal phoenixing is said to cost between $2.8 billion and $5.3 billion a year, with small business suppliers saying they are often left unpaid when it happens.
A hotline was established in July for the public to “dob in” dodgy directors.
It’s a plan that’s been welcomed by subcontractors in particular, who say they are “always the ones who miss out” while company directors walk away “unscathed” even if they have committed phoenixing.
“Normally subcontractors have done the work, they’ve put in the time, the materials, all of the expense… and then they sit around waiting to get paid,” the Australian Subcontractor Association’s Paul Williams says.
“Businesses go broke every day, and quite often it’s not due to the directors of the business. But there’s certainly an element that will take advantage of phoenixing activities, and if the ID number can stop that, that’s a good thing.”
Australian Small Business and Family Enterprise Ombudsman Kate Carnell have praised the government’s work on fighting phoenixing given the impact it can have on independent contractors. “Currently, if there is any money left, secured creditors come first, the employees are paid wages owing out of the federal government’s FEG (Fair Entitlement Guarantee) and the subbies are left with nothing,” she said on the issue in a statement earlier this year.
But others have less faith in the scheme.
“We say that DINs are useless in reigning in illegal phoenix activity. They may have some impact on repeat offenders but have no effect on first-time offenders. One offence is usually all that is required,” says the head of the Subcontractors Alliance, Les Williams.
Instead, Williams says regulation in the building space, in particular, has been lacking, with enforcement from ASIC and the criminal authorities in the past not being enough of a deterrent.
Failing to apply for a number will result in criminal penalties of more than $12,000 or civil fines of up to $200,000 for an individual.
Deliberately trying to undermine the system, including applying for multiple numbers or misrepresenting a director ID number, result in a possible 12-month prison term.
Fines of up to $1 million apply to body corporates involved in misrepresenting or applying for multiple numbers.
Consultation on the draft legislation will be open until October 26th.