All company directors will soon be required to apply to ASIC to obtain their own unique Director Identification Number (DIN). The Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill (the Amendment), part of the Government’s legislative package to introduce the Commonwealth Registers Act, has now passed both houses of parliament. Pending royal assent, it will amend the Corporations Act 2001 (Cth) and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth).
The new DIN regime is a big shake-up to company administration and directorships.
What is illegal phoenixing activity?
As previously discussed by Griffin Legal, illegal phoenixing activity occurs when one company is liquidated and then a new company is deliberately created to essentially take its assets (if any) and carry on the business of the liquidated company. This activity is often implemented to avoid paying taxes and/or paying creditors and employee entitlements. The Government estimates the total cost of phoenixing activity to the Australian economy is $4 billion per annum.
What does the change mean for directors?
Previously, although directors’ details were lodged with ASIC, the law did not require ASIC to verify the identity of directors. Each person who consents to be a director of a company will now be required to verify their identify and have a DIN, that is, a unique identifier to keep permanently even if they cease to be a director. The DIN can then be used as a means of identifying directors instead of requiring more personally identifiable information.
The DIN provides traceability of a director’s positions and relationships across different companies, enabling tracking and preventing the use of false identities. The Amendment imposes new civil and criminal penalties, such as the issuing of infringement notices, for those who fail to meet their DIN requirements. For example, applying for a DIN whilst knowingly already having one may attract a penalty of up to 12 months imprisonment.
The Registrar of the new Commonwealth registry regime will specify a timeframe via ASIC in which existing directors will have to obtain a DIN. Prospective directors may apply for a DIN if they intend to become a director within 12 months of submitting the application. The Amendment provides for a 12-month transitional period in which new directors will have up to 28 days to obtain a DIN. After which time, directors will be required to have a registered DIN before their appointment.
How will the new DIN regime shake things up for corporations?
The new DIN regime adds an additional layer of oversight to companies and is intended to promote good corporate governance and accountability.
Regulators and external administrators will be assisted in investigating the involvement of directors in potentially repeated unlawful activity, including phoenixing activity.
Previously, individuals may have had multiple ASIC registrations with slight name differences for their appointments, some of which were intentionally varied. However, under the new DIN regime, these inconsistencies will no longer be recognised. All directors will have a single, complete, and comprehensive record traceable via their DIN unless an exemption is granted by the Registrar.
Corporate governance will be restricted in so far as companies will be unable to make urgent appointments to fill vacancies. New directors will be required to go through the DIN verification process. Corporate government documents will need to be amended to accommodate for the DIN process. There will also be a need to account for DINs in any sale or purchase of companies.
In the midst of a global pandemic, it is unlikely that we will see these changes implemented until 2021. However, it is important to stay up to date with when and how the DIN changes will impact you and your company to avoid falling behind and incurring penalties.
For more information or advice tailored to your individual or corporate needs, contact Griffin Legal today.