Yesterday, the Turnbull government announced a number of reforms aimed at addressing illegal phoenixing activity through deterrence and penalties.
The main measure is the introduction of a Director Identification Number (DIN) which will connect with other government agencies and databases to allow regulators to trace the relationships between individual directors and various companies to identify phoenix activity.
The government will also consult in the coming weeks 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.
It will also consider allowing the ATO to retain tax refunds and allowing the ATO to commence immediate recovery action following the issuance of a Director Penalty Notice.
Chartered Accountants Australia and New Zealand (CA ANZ) has labelled the DIN as “a step in the right direction”.
“The DIN must be a ‘tell-us-once’ centralised online report which meets the needs of multiple federal and state regulators and reduces compliance costs. We hope the states and territories come on-board with this,” CA ANZ head of tax Michael Croker said.
“There are a number of less obvious benefits. For example, the DIN helps identify those new to the director role so that suitable educational products can be pushed to them and hopefully increase awareness of their responsibilities and duties.”
However, Mr Croker highlighted key concerns around identity verification and protection.
“Identity verification processes need to be the cornerstone of a DIN,” he said. “The DIN raises obvious privacy and identity theft issues. For example, should directors’ residential addresses be shielded from public gaze?”
Meanwhile, BDO tax partner, Mark Molesworth also voiced both support and scepticism for the DIN.
“The introduction of the DIN, if done well, has our support. Identity crime is a rising issue and anything that the regulators can do to seamlessly prevent such crime is to be encouraged,” he said.
“Of course, this will require that the security of the DIN system is first rate otherwise it runs the risk of identity fraud itself.”
Mr Molesworth did express concern over some of the other proposed reforms, and indicated that BDO will make a submission in relation to the reforms.
“As always, the devil will be in the detail,” he said. “We will be participating in the consultation to attempt to ensure that the rules strike the right balance between penalising criminal behaviour and not stifling entrepreneurship.”
Baker McKenzie partner David Walter, who has previously advocated for the establishment of the DIN, believes that the advisers assisting companies will be next in the firing line.
“I think the other aspect of phoenix company activity that’s under very close consideration is the rapid development and growth of a market for services that are broadly described as being pre-insolvency advisers,” Mr Walter said.
“That is a market occupied by effectively unlicensed and unsupervised individuals offering advice and services to people that in broad terms look to affect phoenix company structures. I think there is considerable appetite from both government and key industry bodies to see the pre-appointment adviser industry regulated at least, if not rubbed out.”
“The view, which is one that I share, is that the people which are doing the phoenix company activity are not doing it unassisted or on their own, they are doing it with the support of an industry of advisers who specialise in this type of misconduct.”