The Federal Government is planning to assign company directors with their own identification numbers in a bid to crack down on phoenix activity in the local market.
The move, which will effectively see individuals tagged with their own unique ID numbers, is aimed at keeping a closer eye on company directors in the hope of preventing dodgy operators from deliberately ditching their businesses and setting up new companies free of debt.
“The Government’s comprehensive package of reforms will include the introduction of a Director Identification Number (DIN) and a range of other measures to both deter and penalise phoenix activity,” the Government said in a statement.
The DIN will identify directors with a unique number. It will also interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.
So-called phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. It is also illegal.
According to the Australian Government Productivity Commission, it has been estimated that around 2,000 businesses per year are involved in phoenix activity, at a total cost to employees, business and governments of $1.8 to $3.2 billion per year.
Phoenix activity can be also associated with a siphoning of assets by business owners out of business structures immediately prior to insolvency.
There are some industry sectors in which phoenix activity has been particularly rife, such as the construction industry. At the same time, however, the local IT industry has not been immune to such activity.
In the words of the Australian Taxation Office (ATO), “this illegal phoenix activity impacts the business community, employees, contractors, the government and environment, including non-payment of wages, superannuation and accrued employee entitlements, getting an unfair competitive advantage over other businesses and avoidance of regulatory obligations”.
Financial Services and Revenue Minister, Kelly O'Dwyer, announced the new ID number plan and the larger reform package within which it sits on 12 September, saying on social media that, “individuals who engage in illegal phoenixing activity must be held to account. The Govt will equip regulators to take stronger action”.
The move to assign company directors with their own ID numbers was one of the recommendations of the Productivity Commission. In its Business Set-up, Transfer and closure inquiry report from 2015, the Productivity Commission recommended the introduction of a director identification number.
This number would be “underpinned by an identification process along the lines required to establish a bank account, to enable the monitoring of director registration (including the detection of disqualified or fraudulent directors), the collection of data regarding director appointments over time (to establish patterns of director involvement in repeat business failures) and detection of possible fraudulent and phoenix activity by the Inter-agency Phoenix Forum and investors,” the report stated.
The Government said it will also consult on how best to identify high risk individuals who will be subject to new preventative and early intervention tools, including a next-cab-off-the-rank system for appointing liquidators and allowing the ATO to retain tax refunds.
The Federal Government has taken a whole-of-government approach to cracking down on phoenix activity, with the ATO working with other government agencies through the Phoenix Taskforce to stamp out the activity and maintain a “level playing field for business and protect the Australian revenue system”.