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Director Identification Number process in private beta testing

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The Registrar’s information collection powers in relation to the new Director Identification Number (Director ID) requirement is set out in the Legislative Instrument titled Corporations Identification Number Data Standard 2021 (the Instrument), registered on 15 April 2021.

About the Director ID

The Director ID requirement was introduced by Schedule 2 to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020, which received Royal Assent on 22 June 2020.

New Part 9.1A of the Corporations Act 2001 (the CA) requires directors to apply to the Registrar — also the Commissioner of Taxation — for a Director ID within 28 days of their appointment (exemptions and extensions may be applicable). The Registrar will be required to provide the director with a Director ID if satisfied that the director’s identity has been established. An individual with a Director ID may request the Registrar to update their details in accordance with their obligations under the CA.

Civil and/or criminal penalties will apply for directors who fail to meet their obligations.

The Director ID will require all directors to confirm their identity and it will be a unique identifier for each individual who consents to being appointed a director. The individual will keep that unique identifier permanently, even if they cease to be a director. An individual’s Director ID will not be re-issued to someone else and generally only one Director ID will be issued to an individual.

The Director ID requirement was introduced partly to deter and penalise illegal phoenixing behaviour. Illegal phoenixing is when the controllers of a company deliberately avoid paying liabilities — to creditors, employees and governments — by shutting down an indebted company and transferring its assets to another company. The total cost of illegal phoenixing to the Australian economy is estimated to be between $2.9 billion and $5.1 billion annually.

The Director ID will provide traceability of a director’s relationships across companies, enabling better tracking of directors and preventing the use of fictitious identities. This will assist regulators and external administrators to investigate a director’s involvement in unlawful activity.

In addition, the new Director ID regime is intended to provide other benefits beyond combatting illegal phoenixing, including:

  • allowing shareholders, employees, creditors and consumers to be confident they know who the directors of a company are;
  • improving the efficiency of the insolvency process by providing a simpler, more effective tracking of directors and their corporate history, which will reduce time and cost for administrators and liquidators;
  • improving data integrity and security.

No commencement date set

The Director ID requirement will apply from a date to be fixed by proclamation. This is to ensure that a commencement date can be set when administrative arrangements are in place. If it does not commence by 22 June 2022 it will automatically commence on 23 June 2022.

Under transitional arrangements, persons who are directors at the time the new requirement starts will have to apply for a Director ID within the period specified in a legislative instrument made by the Minster, and there is no requirement to apply for a Director ID until this instrument is made. In addition, a director will have an extra 28 days to apply for a Director ID during the first year of operation of the new requirement.

The Corporations (Transitional) Director Identification Number Extended Application Period 2021, registered on 29 April 2021, provides that new directors appointed between the commencement of the Director ID requirement and 31 October 2021 have until 30 November 2022 to obtain a Director ID.

The ATO roll-out

The Director ID roll-out is administered by the ATO. The Director ID scheme forms part of the Modernising Business Registers (MBR) program, which the Registrar is responsible for implementing. The MBR program, to be rolled out between 2021 and 2024, implements a number of initiatives to streamline and improve how business information is maintained, including establishing a new central registry service, the Australian Business Registry Services (ABRS), to unify 32 existing registries.

Directors currently do not need to do anything. The ATO is testing the new application process in a private beta.

When it is time to apply for a Director ID, directors will be able to use the new ABRS online services and will sign in using the myGovID app.

Existing laws to combat phoenixing

The introduction of the Director ID requirement is one of the most recent legislative changes designed to deter phoenixing practices. The corporate law and tax law currently include rules which:

  • impose personal liability on directors for their companies’ unpaid PAYG, superannuation, GST, luxury car tax and wine equalisation tax debts;
  • allow the ATO to disclose to credit reporting agencies information about overdue business tax debts of over $100,000;
  • prohibit a director from allowing their company to trade if it is or will become insolvent;
  • prohibit the avoidance of paying employee entitlements;
  • prohibit creditor-defeating dispositions of company property and allow liquidators and ASIC to recover such property;
  • prevent directors from backdating resignations or leaving a company with no directors.

The Registrar’s information collection powers

The Instrument, which sets out the Registrar’s powers to collect information, applies to individuals applying for a Director ID under the CA. A separate instrument will be issued to detail the requirements for an application for a Director ID under the Corporations (Aboriginal and Torres Strait Islander) Act 2006.

What information can be collected

For the purposes of establishing an individual’s identity and providing the individual with a Director ID or to update their details, the Registrar may require and collect the individual’s:

  • names and former names;
  • addresses and former addresses;
  • contact details;
  • date and place of birth;
  • identity documents or information evidencing identity.

The Registrar may also request, but not compel, the individual’s tax file number.

There may be considerable variation in the information required to uniquely identify an individual. In order to ensure flexibility in allowing individuals to confirm their identity, it is not possible to provide an exhaustive list of information that may be requested.

How the Registrar may collect information

Individuals applying for a Director ID  through the electronic platform will be required to verify their identity digitally. This will require a digital identity credential. Individuals will need to provide Australian identity documents to apply for a digital identity credential (if they do not already have one).

The preferred means of applying for a Director ID is electronically. If an individual is unable to do so, the Registrar may consider accepting a paper or other form of application.

Foreign directors or directors unable to obtain a digital identity credential will follow the existing ATO proof-of-identity process, which is predominantly paper-based and may include certified copies of identity documents, assistance through Shop Fronts, use of an apostille and Australian Consulates.

An individual who wishes to apply for a Director ID will visit the proposed website. When they click on the button to apply, they will be directed to an accredited digital identity provider for authentication.

If the individual does not have a digital identity credential, they can apply at this stage, and prove their identity using key Australian identity documents. The currently accepted documents are a driver’s licence or learner’s permit, passport, birth certificate, Australian visa, and Medicare card. Additional documents may be accepted sometime in the future.

The accredited digital identity provider will collect and verify some personal information and this will be passed to the Registrar’s secure platform. This information will be displayed to the individual to indicate that this information has been collected/shared from their digital identity.

Individuals will be informed about the collection of their personal information through a privacy notification at the time of application.

How to apply for a Director ID

An application for a Director ID must be made in the form approved by the Registrar. The form will usually be an electronic form, unless the individual cannot use the electronic form.

For digital applications an accredited digital identity provider will be the main proof-of-identity solution used for Director ID. Currently, individuals applying for a digital identity credential through myGovID are required to prove their identity using key Australian identity documents.

Individuals are responsible for completing the Director ID application form themselves, and an agent or other third party cannot apply for a director ID on behalf of a director unless the Registrar is satisfied that an exception applies (e.g. due to disability, injury or illiteracy).

How the Registrar uses the information

The Registrar may use the collected information for the purpose of giving the individual a Director ID and maintaining the accuracy of Director ID information. The Registrar may make a record of information collected or generated in the course of processing the individual’s application, including any updates or corrections.

Where possible the Registrar will validate information provided by the director in real‑time, such as email, mobile and addresses using data validation software. If the information provided is not validated, the form will prompt the individual to re-enter the correct information in the field. If information is not validated, the form cannot be submitted.

The Registrar may also authenticate the information provided by an individual against third party information (e.g. driver’s licence information and ASIC registries) and ATO records.

Collected information is protected information and subject to the secrecy and disclosure provisions in Part 9.1 of the CA. The Registrar may disclose the information to other government agencies as permitted by law. Amongst other things, the Registrar may provide a TFN to the Commissioner for verification purposes, and may also request from the Commissioner the TFN of an applicant.

The Registrar must record and store information obtained by the Registrar. The data from the Director ID application will be stored in a secure platform controlled and maintained by the Registrar. The Registrar will apply security methods and technologies to protect the information.

How the Registrar may update information

The Registrar may update the Director ID information of an individual if the Registrar reasonably believes the information is incorrect, e.g. where there is a change of details of a director.

An individual will be able to request updates to their details electronically. A paper or telephone option may be provided.

Communication

The Registrar anticipates that the number of directors who will be required to have a Director ID is approximately 10 per cent of the Australian population.

The Registrar will communicate with holders of and applicants for a Director ID electronically unless they cannot be contacted by electronic means.

Declaration

An applicant for a Director ID will be required to complete a declaration confirming that:

  • the individual is the applicant identified in the application;
  • any information provided in the application is true and correct;
  • they meet the requirements to apply for a director ID, that is:
    • they are an eligible officer or they intend to become an eligible officer within 12 months after they have applied;
    • they do not already have a Director ID or have been directed by the Registrar to apply or apply again.

Review of decisions

An individual adversely affected by a decision of the Registrar may be able to apply for review of the decision.

Stay up to date

To keep up to date with the progress of the Director ID roll-out and when it may affect your clients, visit the ATO webpage Moderning Business Registers.

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