Director Identification Numbers have been introduced
In June 2020, the Federal Parliament passed the long-awaited Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019. The Bill states that all company directors will now be assigned a unique Director Identification Number (DIN) under a lifetime registration regime.
Once a director of a business confirms their identity, they will be provided with a DIN for life – even if they are appointed as a director of other companies in the future. This makes it easier for regulators to track directors of failed companies and reduces the risk of a director using a fake identity and participating in illegal phoenixing.
The changes, expected to be enforced in early 2021, state new directors need to apply for a DIN before they’re appointed as a director. There are criminal penalties for directors that provide false information or don’t apply for a DIN. Click here for more information.
Download our free phoenixing whitepaper
CreditorWatch has always been active in the fight against dodgy director activity and phoenixing. Many businesses don’t realise the risks associated with a director that holds adverse credit information or a cross directorship.
What is a cross directorship?
A cross directorship defines when the director of one company is also the director of another company or companies. Often, creditors are unaware that the director of a company who they are doing business with is also the director of one or multiple companies elsewhere.
CreditorWatch’s feature Director Due Diligence uncovers a director’s past and present business activity and helps you reduce the risk they pose to your business.
How does Director Due Diligence work?
When the director of a company you are monitoring has an adverse action registered against another one of their companies, you will receive an email alert. These changes include court actions, payment defaults, insolvency notices, mercantile enquiries and status changes.
Director Due Diligence also offers up-to-date bankruptcy data to help your bankruptcy searches across multiple individuals in CreditorWatch.
Why is it important to be aware of cross directorships?
Some cross directorships can pose a risk to your business. When the director of a company you are monitoring has an adverse action registered against another one of their companies, this can indicate you may eventually feel the effects of that action. Past and present director behaviour is a great indicator of the future of a business. Here are a few things to consider:
- A director with a payment default is 5 times more likely to experience another one
- A director with a court action is 2 times as likely to have another one
- A director with a failed business is 2 times more likely to fail again
If one of the worse case scenarios occurs and a director becomes individually bankrupt, they can slip through the cracks and still operate even though it is illegal to do so. This can often be flagged with slight name and address changes. If there have been insolvencies and the director sets up other companies afterwards with slight changes, this could also be an indication of illegal phoenix activity.
By monitoring directorships, you know you’re receiving the full picture. Identifying cross directorships can show a visual and clear idea of who you are dealing with. Adverse data and the statistics above provide a clear warning that adverse actions can happen again if they have already occurred.
It’s vital to understand where you stand with your riskiest customers so that you can take action and make a plan to mitigate risk.
Stay on top of risk and never miss an important change. Speak to your account manager about Director Due Diligence or enquire with CreditorWatch today.
