Every director of an Australian company will be identified by a number in a Federal Government crack down on “illegal phoenix activity” – the name given to the practice of stripping and transfering assets from one company to another to avoid paying liabilities to creditors.
The purpose of the Director Identification Number (“DIN”), along with other measures, is to enable the Federal Government to identify directors and their relationships between various individuals and entities in order to deter and penalise phoenix activity.
The Australian Institute of Company Directors stated its support of the move against “phoenixing” which the Federal Government says costs the economy up to $3.2 billion a year.
In a paper entitled “Combating Illegal Phoenixing” released in September 2017, the Federal Government states that illegal phoenixing is becoming more sophisticated and includes such tactics as lodging a Business Activity Statement after a company becomes insolvent in order to obtain a refund of GST input credits where expenses precede receipts; the non-payment of certain unsecured creditors; and, the non-lodgement and payment of BAS and income tax returns.
The paper proposes amendments to the Corporations Act 2001 to “specifically prohibit the transfer of property from Company A to Company B if the main purpose of the transfer was to prevent, hinder or delay the process of that property becoming available for division among the first company’s creditors”.
One further proposal in the paper is to extend the current Director Penalty Notice (“DPN”) regime from applying to PAYG withholding tax and compulsory superannuation contributions to also include a company’s unpaid GST liabilities meaning a director may be personally liable to pay GST liabilities.
While we have yet to see any concrete legislation around this new proposal we are more than happy to discuss the effects of the change in Government policy with you should you wish.