Tracking Company Directors to Combat Phoenixing Practices

Contact: Mark Poretti

On 1 October 2018, Treasury announced a suite of proposed reforms to the multiple business registers currently administered by the Federal Government. Amongst these reforms, Treasury has included an amendment to the Corporations Act 2001 (Cth) introducing a “Director Identification Number” requirement (DIN Scheme).

The DIN Scheme is the latest Federal Government initiative to combat the practice known as “Phoenixing”. Phoenixing occurs when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring its assets to another company. Treasury estimates that this practice costs the Australian economy between $2.9 billion and $5.1 billion annually.

As one participant in the Productivity Commission’s consultations put it, “it is easier to become a company director than it is to rent a movie”! The DIN Scheme aims to combat this problem in two ways:

1. By requiring all current and future company directors to verify their identity with ASIC; and
2. Most significantly, by assigning a unique identification number to all current and future company directors.

A director must retain their unique number across any company of which they are or become a director. It is envisioned that this added traceability will help curb repeat offenders of Phoenixing practices. Significant penalties (up to $200,000 for individuals and up to $1M for corporations) apply for failure to comply with these new obligations.

Of course, the DIN Scheme is still in its early stages and yet to make it to the Parliament floor for debate.

Treasury is seeking public submissions on the reforms up until 26 October 2018. You can have your say on the issue by writing to the contacts provided here: https://treasury.gov.au/consultation/c2018-t330649/

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