Verified ID a step towards purging dodgy directors

By admin - August 31, 2018

The introduction of a Director Identification Number is not enough alone to curb phoenixing of businesses or rogue operators - but it could help improve the overall state of corporate transparency.

In a submission to the Federal Government on its planned modernisation of business registers, the Business Recovery & Insolvency division of Pitcher Partners has thrown its support behind the introduction of an identification number, or DIN, as “one small measure of corporate transparency (that) needs to be assessed in the context of a package of other reforms.”

The submission notes that it is far easier in Australia to become a company director than it is to open a bank account, with individuals only required to provide their name, an address and a date of birth.

But none of these pieces of identifying data are verified when an application to become a director is made, there’s no requirement for the person to prove their identity, and nothing to stop an individual registering as a director under multiple false names.

Partner of Pitcher Partners' Business Recovery & Insolvency division, Paul Weston, said the ASIC company register was open to abuse by rogue operators who exploited obvious deficiencies in the current system for criminal purposes.

“It’s been a very frustrating element of our work that it is easy to become a director of a company, and it is easy to provide incorrect, false or misleading information to become a director,” Mr Weston said.

“On the one hand raising the bar can act as a deterrent for people looking to start and build companies, but on the other hand — you simply can’t have the serious role of being a director lacking both oversight and scrutiny.

“Trying to capture and collect correct information on someone when you are appointed as a liquidator to their company can be enormously difficult. We see people acting as directors who use false names and addresses, run up significant debts, and even change companies a few times.

“They go right under the radar because they have never been properly registered.”

The Pitcher Partners submission supports the recommendation put forward by the Productivity Commission in 2015 on DINs — that they be created the first time an individual takes up a directorship and involve a 100-point proof of identity check.

It argues that regulatory compliance should be dealt with using an online proofing check, either via a verified account like MyGov, or by providing two forms of identification through online verification.

The latter option should only be offered if the director has an Australian residential address and there is sufficient data in third-party databases to link an individual to the identity they are claiming.

For existing directors, Pitcher Partners argues DINs must be provided no later than the first annual return following the introduction of the system, with a 12-month grace period to enable transition.

“To meet its stated objectives, DIN information needs to be connected to not only newly incorporated and existing companies, but also to deregistered companies with which the director has been associated,” the submission argues. 

“We suggest that disclosure of deregistered companies forms part of the DIN application for individuals.”

It is not known just how inaccurate the Australian register of Directors is, given the lack of external verification, however recent cases of banned directors indicate deliberate or accidental misidentification is rife.

In several recent cases, ASIC’s orders to ban a director have included variations of the banned director’s name or address, including misspellings, different first or middle names, or addresses where there is no house, just a vacant lot.

Earlier this month, Victorian accountant Jason Hammond was banned as a director under the names Jason Hammond, Jason Andrew Hammond and Jaosn (sic) Andrew Hammond. 

In another instance, a senior member of the NSW criminal underworld was registered as the director of multiple phoenixed entities under a number of different aliases to mask his involvement.

“The introduction of a DIN would have prevented these individuals hiding their real identities behind aliases and variations in their names.” Mr Weston said.

“While a DIN is not going to stop illegal phoenix activity on its own, it will provide far greater transparency about those individuals registered as company directors.”

While the DIN should improve the ability to search and identify directors, Pitcher Partners warns many directors of the 2.5 million registered companies might not make the effort to update the register. There are approximately 2.9 million changes to the register every year.

“It is highly likely that a proportion of existing directors will not comply with these requirements,” the Pitcher Partners submission warns.

“The consequences of non-compliance could mirror the sanctions imposed on non- payment of annual return fees.”

The submission recommends an offence be introduced into the Corporations Act for directors who knowingly apply for more than one identification number and those who provide false information to ASIC.

The Federal Government is expected to review submissions and make conclusions in the coming months.

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