The case for director identification numbers has been strengthened as the corporate regulator admits that Elvis Presley or even Bob Marley could register as company directors.
‘Elvis Presley or Bob Marley’: ASIC pushes for new director identification system
Fronting the Parliamentary Joint Committee on Corporations and Financial Services, ASIC commissioner John Price said the corporate regulator does not verify the identity of company directors, merely registering them.
“What I can say is that the system in Australia for registration of directors is just that. It’s a registration system; it’s not a checking system,” Mr Price said.
Senator Peter Whish-Wilson then queried if ASIC had any oversight over dummy directors.
“If Elvis Presley or Bob Marley wanted to register as a company director, they could?” asked Mr Whish-Wilson.
“Quite possibly,” replied Mr Price.
Director identification numbers
Mr Price repeatedly pointed towards Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 as a measure towards improving the accountability of company directors.
The bill, which has since passed the lower house, proposes to introduce new director identification numbers (DIN), which will require all directors to confirm their identity to a unique identifier that will be kept permanently, even if they cease to be a director.
The unique identifier will provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious identities.
To date, current application to become a company director requires only a name, an address and a date of birth, with no requirement for a person to prove their identity.
“We think that these reforms are very welcome because [they] will provide a level of integrity around the data in our corporate registers,” Mr Price said.
However, ASIC executive director Warren Day warned that the new system would take around two years to set up even with the passing of legislation.
“We want to build the director identification number system onto the new platform, not old technology that’s more than 30 years old,” Mr Day said.
“We understand that haste from a number of industry bodies and government parties that it be done now or yesterday.
“We don’t want to rush it; we want to make sure that it is built on the new technology platform.”
Directors on notice
The corporate regulator also believes that the DIN measure will tie in well with the recently passed illegal phoenixing bill which extends the director penalty regime to goods and services tax (GST), luxury car tax (LCT) and wine equalisation tax (WET) liabilities.
“A director identification number coupled with [the new measure] will now be quite powerful because we will know it is that person. It won’t be a Bob Marley or others. It won’t even be an incorrect person. It will be the right person, so identity won’t be a problem,” Mr Day said.
“If a company is closed without paying GST, then the other law that’s just been passed will mean the Commissioner of Taxation now can hold directors personally liable for that GST payment requirement.”
Directors, particularly passive ones, have since been warned of the significant risks of being exposed to unpaid GST, on top of unpaid pay-as-you-go (PAYG) withholding and superannuation guarantee liabilities.
“It is common for businesses, particularly small and medium-sized businesses, to struggle with GST liabilities due to cash-flow issues,” said Rigby Cooke Lawyers tax counsel Tamara Cardan.
“It is also fairly common for passive directors to not be actively involved in their businesses.
“In light of these new powers to penalise directors and hold them personally liable for unpaid GST, I think it will be very risky to be a passive director.”