This article aims to analyze the recent decision of the Australian Securities & Investment Commission (ASIC) requiring all company directors in Australia to obtain a new director identification number (director ID).
What Is Director ID?
In short, it is a unique identifier given to a company director who has verified his/her identity with ASIC.
What is the main reason behind the director ID?
It is designed to prevent the use of false or fraudulent director identities/activities. Once the director’s ID gets recorded in a new database to be administered and operated by the Australian Taxation Office, it will further provide additional measures to trace and hold a director accountable for his/her directorship duties.
Who is required to apply and obtain the director ID?
The new requirement applies to all directors and acting directors who are registered in Australia under the Corporations Act 2001 (Cth), as well as registered foreign companies.
How this new requirement differs from the existing ones?
The law aims to prevent illegal activities by the company directors. Prior to introducing this new requirement, some company directors were able to take advantage of the corporate veil principle that would protect each director from personal accountability in the event their company fails to meet its legal and financial obligations. In this scenario and under the old regime, a director who had failed his/her duty in operating a legal, honest, transparent, and sound business, could have transferred the existing assets of the company on the edge of defaulting its obligation to a new company in order to continue trading and leaving the unpaid debt with the old company and if there was any legal action taken by the creditors, the directors would then shield themselves behind the corporate veil. The whole issue of transferring the assets to avoid liability by the old company to a new one is termed as illegal phoenix activity. However, with the new requirement now in place, it would make it very difficult for a company director who may be considering an act of phoenixing, to do so.
Is there a deadline to apply for a director ID?
The short answer is yes. Existing directors have until 30 November 2022 to apply while new directors appointed between 1 November 2021 and 4 April 2022 must apply within 28 days of their appointment. ASIC requires that as of 5 April 2022, intending directors to apply for director identities before being appointed.
Is it an offence not to apply for director ID?
The short answer is yes. Under the Corporations Act 2001 (Cth), failure to have a director ID when required is an offence. A director who applies for the director ID must also ensure that he/she is not applying for multiple director IDs and does not misrepresent when applying for the director ID.
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Article Source: Director ID
