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Every director will need to have a unique number as part of a registry overhaul to combat fraud. The chief technical officer of CreditorWatch, Joseph Vartuli, offers a guide to the system.
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The A to Z of director IDs
01 April 2022
•
11 minute read
From April 5, director identification numbers start to become mandatory in a move to crack down on illegal business activity.
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From that date, anyone appointed a company director for the first time will need to have applied for their director ID prior to their appointment. Recently appointed directors must apply within 28 days while those appointed before November 2021 must apply by the end of November this year.
Designed to promote the integrity of the corporate system, director IDs aim to cut out false business identities, adverse cross directorships and phoenix companies.
Every company director needs to meet these legal obligations and apply for their ID before the specific deadlines.
What is a director ID?
A director ID is a unique 15-digit identifier that an individual keeps forever. It’s given to directors who have verified their identity with the Australian Business Registry Services (ABRS).
Directors will only ever have one director ID, which remains the same even if they change companies, alter their name, stop being a director, move interstate or overseas.
Each director needs to apply for their own ID. For identity verification purposes, no one else can apply on their behalf.
What are director IDs for?
Director IDs are the first point of focus for the ABRS, a new government registry service established as a result of the Modernising Business Registers program.
The ABRS combines 30-plus government registers into a single platform, improving the efficiency of registry service transactions. Businesses will find it easier to meet their registration obligations and it will increase the utility and reliability of business information.
This is a long-awaited step forward, moving away from outdated systems susceptible to financial misconduct.
What will director IDs do?
Director IDs will be used across government agencies and databases. They will be a key instrument in combating fraud, illegal behaviour and the black economy. This will benefit businesses, employees, public revenue, the integrity of the corporate system and the overall Australian economy.
There will be several benefits:
A fairer business environment
At the moment, director information can sometimes be hidden or difficult to obtain. But shareholders, employees, creditors, consumers, administrators and regulators are entitled to know the names and details of company directors. Director IDs will create a fairer business environment by improving data integrity and confidence in knowing who the directors of a company are.
Increased transparency and traceability
Director IDs will improve the traceability of directors’ relationships with companies over time. This will make it easier for external administrators and regulators to track directors of failed companies. The ability to effectively track directors as they go from one company to another reduces the risk of directors engaging in unlawful activity.
Improved detection and deterrence of fraudulent identities
Directors who become bankrupt may sometimes slip through the cracks and continue operating illegally. Monitoring director registrations and appointments over time makes it easier to detect disqualified or fraudulent directors. Director IDs will help prevent the use of false identities and the appointment of fictitious directors.
Identification of adverse cross directorships
A cross directorship occurs when an individual is the director of multiple companies. When a director has an adverse action registered against another one of their companies, its trading partners may be exposed to the knock-on effects without even being aware of it.
Businesses should be able to know if the director they’re working with has other companies or a history of failed businesses. Director IDs will reveal cross directorships, making it easier for businesses to identify potential risks associated with each director they work with.
Prevention of illegal phoenix activity
Illegal phoenixing occurs when a company director deliberately shuts down their company to escape their liabilities and transfer their assets to a new company. The failed director sets up a new company with slight changes to evade regulators and debtors. Trade creditors are left unpaid, employees lose their wages and entitlements, other businesses are put at a competitive disadvantage and public revenue is affected due to unpaid taxes and compliance costs. Director IDs will play a crucial role in detecting, deterring and disrupting phoenix activity.
Who needs a director ID?
If you want to become a director or are already one, you will need a director ID.
All directors of a company, registered foreign company, registered Australian body or Aboriginal and Torres Strait Islander corporation will need a director ID.
Sole traders do not require a director ID.
What are the application deadlines?
Your application due date depends on the date you become a director.
If you become a director from 5 April 2022 onwards, you must apply for a director ID before your appointment.
If you were recently appointed as a director – between 1 November 2021 and 4 April 2022 – you must apply for a director ID within 28 days of appointment.
If you became a director on or before 31 October 2021, you must apply for a director ID by 30 November 2022.
What happens if a director fails to apply?
There are civil and criminal penalties for non-compliance with these new requirements.
ASIC will take enforcement action according to these four new director ID offences under the Corporations Act 2001:
- Failure to have a director ID when required to do so
- Failure to apply for a director ID when directed by the registrar
- Applying for multiple director IDs
- Misrepresenting director ID
How do you apply?
Directors can apply for their own IDs online using the myGovID app. For step-by-step instructions, visit this page. It is a free and quick one-time procedure.
CreditorWatch is constantly contributing to the fight against dodgy director activity and illegal phoenixing. To understand exactly who you’re working with, check out director due diligence, know your customer (KYC) procedures and ultimate beneficial owner (UBO) reports.
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