Director Identification Numbers: an anti-phoenixing measure
Following the largest detected tax fraud in Australian history, the Federal Opposition announced a range of policy measures to combat illegal phoenix activity.
Phoenixing involves the intentional transfer of assets from an indebted company to a new company to avoid paying creditors, tax or employee entitlements.
The Australian Institute of Company Directors (AICD) has supported several of the proposals from the opposition to combat phoenixing, including the introduction of Director Identification Numbers (DINs) and 100-point checks for directors to make it easier to track those engaged in this behaviour. The AICD also backs increasing penalties and increased enforcement activity.
The introduction of DINs would also provide an opportunity for the AICD to press for the protection of directors’ sensitive personal information – such as home addresses and date of birth – on public online registers, given cybersecurity and privacy concerns.
The introduction of unique DINs was a key recommendation of the Productivity Commission’s Draft Report on Business Set-Up, Transfer and Closure. The AICD will continue to consult with both the opposition and the government to encourage strong measures to combat phoenixing activity.
Fair Entitlements Guarantee scheme review
The government is looking at reforms to address corporate misuse of the Fair Entitlements Guarantee (FEG) Scheme. Under the FEG Scheme, the government provides for certain unpaid employee entitlements to eligible employees who have lost their jobs due to the insolvency of their employers. The government then steps in to the shoes of the employees to seek to recover these funds through the insolvency process.
Unfortunately, costs for the FEG Scheme have blown out significantly, with the annual cost of the scheme rising to $284.1 million annually.
Recoveries to the government from FEG payments have been low. There have also been no successful criminal or civil court actions under the existing laws for those abusing the FEG Scheme.
The government sees “sharp corporate practices” as a driver of increasing FEG costs. According to the Treasury consultation paper, one in seven FEG cases involved sharp corporate practices, including phoenixing activity and abuse of corporate group structures. More than 1,300 individuals have been directors of two or more companies whose redundant employees have had to rely on FEG for payments. The majority of these directors have serially managed companies that failed.
The government has proposed a number of measures to tackle these issues. These include amendments to Part 5.8A of the Corporations Act 2001 to make it easier for authorities to deter corporate misuse of the FEG Scheme, take action against directors and officers and options to improve recovery of FEG payments within corporate group structures.
The AICD has provided a submission to the consultation which is available on our website.
18 months to reach gender diversity target
The most recent AICD Quarterly Gender Diversity Report shows that the rate of female appointments to ASX200 boards has slowed in the first part of 2017, with the monthly new appointment rate dropping to 30 per cent.
Despite the evidence that diversity is good for board performance, there are still 13 companies in the ASX200 that have no women on their boards, and 64 companies with only one female director.
To achieve the AICD’s target of 30 per cent women on ASX200 boards by the end of 2018, the monthly appointment rate needs to be at 40 per cent or higher.
The results arrive in the midst of the second anniversary of the Australian chapter of the 30% Club, a group of chairs, directors and business leaders taking action to increase gender diversity on Australian boards.
30% Club chair Patricia Cross FAICD said: “We believe that gender balance on boards not only encourages better leadership and governance, but diversity further contributes to better all-round board performance, and ultimately increased corporate performance for both companies and their shareholders.”
AICD chairman and 30% Club Steering Group member Elizabeth Proust AO FAICD said that it was essential that those who believe that diversity is good for business continue to champion measures to help increase diversity, from appointing female directors to their own boards to shareholders advocating for their participation on the boards they invest in.