Directors of companies in Australia will be issued with unique identification numbers as part of measures the Federal Government says will help crack down on illegal phoenixing activity.

Minister for Revenue and Financial Services Kelly O’Dwyer has announced that all company directors will be issued with a Director Identification Number, which will interface with other government agencies and databases to enable regulators to map the relationships between individuals and entities and between individuals and other people.

It will also will enable prospective creditors or employees to search the prior corporate history of the director in question and to see whether or not the director has been involved in past insolvencies.

The government will also consult on other measures, including:

• Specific phoenixing offences to better enable regulators to take decisive action against those who engage in this illegal activity;
• The establishment of a dedicated phoenix hotline to provide the public with a single point of contact for reporting illegal phoenix activity;
• The extension of the penalties that apply to those who promote tax avoidance schemes to capture advisers who assist phoenix operators;
• Stronger powers for the ATO to recover a security deposit from suspected phoenix operators, which can be used to cover outstanding tax liabilities, should they arise;
• Making directors personally liable for GST liabilities as part of extended director penalty provisions;
• Preventing directors from backdating their resignations to avoid personal liability or from resigning and leaving a company with no directors; and
• Prohibiting related entities to the phoenix operator from appointing a liquidator.

Phoenixing occurs where directors strip assets from one company and transfer them into another in order to avoid paying liabilities.

Estimated to cost the economy as much as $3.2 billion per year, the practice is prevalent in the construction sector and hurts subcontractors, suppliers, employees, competitors and taxpayers.

The establishment of a DIN system was a critical recommendation made as part of a Melbourne Law School study into phoenix companies released earlier this year.

There was no mention, however, of another key recommendation made by the Law School to place restrictions on directors who were involved in five or more companies that had failed in ten years such that they would be able to act as a director of a maximum of five companies whilst under restriction.