A package of five legislative reforms — Commonwealth Registers Bill 2019, Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, Business Names Registration (Fees) Amendment (Registries Modernisation) Bill 2019, Corporations (Fees) Amendment (Registries Modernisation) Bill 2019, and National Consumer Credit Protection (Fees) Amendment (Registries Modernisation) Bill 2019 — received royal assent on 23 June 2020.
These amendments introduce significant changes to the management of Australian business information by Commonwealth bodies, and improve regulation of company directors through the introduction of Director Identification Numbers.
A New register
The Commonwealth Registers Act 2020 (Cth) combines the Australian Business Register and the 34 business registers managed by the Australian Securities and Investments Commission (ASIC), into a central registry platform administered within the Australian Taxation Office by an appointed Registrar. Covered in this initial amalgamation are registers for business entities and names, registers of banned or disqualified persons, and other professional registers.
Unifying the business registers will simplify business registration obligations, enabling businesses to focus on customers and business operations, increase trustworthiness and reliability of business information provided by the registers, and improve the efficiency of registry service transactions.
Any existing Commonwealth body may be appointed as the Registrar, who will be responsible for creating data standards to govern collection of relevant business information and the manner in which this information will be maintained.
Director Identification Numbers
The implementation of Director Identification Numbers is part of the wider legislative push to curb illegal phoenix activity. This includes where a company is deliberately liquidated and its assets transferred to a new entity in order to continue trading. Such activity enables the liquidated company to avoid paying its debts, including amounts owing to creditors, taxes, and employee entitlements. Earlier this year, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) was passed, creating a new voidable transaction known as a ‘creditor defeating disposition’ (Corporations Act 2001 (Cth) (Act) – s 588FDB). As the name suggests, liquidators may now make applications to avoid transactions where a company has disposed of property for less than market value or less than the best price reasonably obtainable, and this has had the effect of preventing, hindering or significantly delaying the availability of property to meet creditor demands.
Implementing Director Identification Numbers will facilitate traceability of a director’s profile and follow their changing relationship with companies under their management, improving detection of suspicious activity. It is expected that this measure will make it easier for administrators and liquidators to track directors, reducing time and cost. For parties looking to contract with a company, being able to access a company director’s history through their Director Identification Number could provide valuable information in their conduct of due diligence.
Current requirements for a director
The current requirements to become a company director are relatively lenient. Section 201B of the Act simply states that a director must be an individual adult (i.e. at least 18 years old) who is not currently disqualified by ASIC (and even then ASIC or the Court may grant an exemption). Under the current law, directors’ details must be lodged with ASIC, but there is no requirement for ASIC to verify these details, occasionally resulting in the appointment of fictitious directors.
Applying for a Director Identification Number
Directors of bodies corporate registered under the Act or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) will be required to apply to the Registrar for a unique Director Identification Number. A director will keep this number even if they cease to be a director.
A director must verify their identity when applying for a Director Identification Number. While the process for this verification has not yet been defined, the Explanatory Memorandum suggests that this could be done by the usual 100 points of identification, or by using a director’s tax file number. The Registrar must assign a Director Identification Number if they are satisfied as to the director’s identity.
There will be an initial 12 month transitional period when the legislation commences. During this period, existing directors will need to register within a period prescribed by the Registrar, and new directors will need to register within 28 days of their appointment.
Following the transition period, new directors will be required to register prior to their appointment.
Civil penalty provisions related to the Director Identification Number
Once the legislation commences, a director breaches a civil penalty provision if they:
- Fail to possess a Director Identification Number (unless they are applying for one) (pending s 1272C of the Act); or
- Fail to apply for a Director Identification Number within the relevant application period (pending s 1272D of the Act); or
- Apply for an additional Director Identification Number if they already knowingly possess one (pending s 1272G of the Act).
Additionally, a person breaches a civil penalty provision if they intentionally misrepresent their Director Identification Number, or represent themselves as a different person by using another Director Identification Number (pending s 1272H of the Act).
Breaching these provisions can result in a fine of 60 penalty units ($13,320 at the time of writing) or 1 year’s imprisonment.
When will these changes be operational?
The Commonwealth Registers Act 2020 (Cth) commenced on 23 June 2020. The amendments to the Act that require directors to apply for Director Identification Numbers will commence at latest by 23 June 2022, unless an earlier date is proclaimed.
Director Identification Numbers in foreign jurisdictions
Aside from India, which introduced Director Identification Numbers in 2006, the concept has had little uptake in foreign jurisdictions. New Zealand briefly consulted on the introduction of Director Identification Numbers in 2017, but has not yet moved to implementation.
The process for application of a Director Identification Number in India is relatively simple. The prospective director must complete an online form and provide proof of identification (including a photograph of the individual, proof of identity, and proof of residence). There are different forms to complete for directors of new companies and directors of existing companies. The Director Identification Number is issued once the form is approved and a filing fee is paid. It will be interesting to see how India’s process compares with the process in Australia, as the Federal Government has not yet issued guidelines on applying for a Director Identification Number.
The combination of the relevant registers will require significant upgrades to the underlying IT infrastructure, as well as guidelines on the maintenance and collection of information. If all goes according to plan, the Director Identification Number requirement will provide various stakeholders with a meaningful way to track director movements, making it easier to identify illegal phoenix activity and improving oversight of companies in Australia.