Answers to your questions around the introduction of director identification numbers

On 22 June 2020, the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 received Royal Assent, setting the introduction of a director identification number (DIN) system in motion.

The concept of director identification numbers has been discussed since 2015 and is just one measure in a package of reforms now legislated to help prevent phoenixing. Phoenixing is illegal and occurs when a company moves assets away from company ownership or control to avoid paying out liabilities to creditors and employees on the cessation of the company, which then resumes trading as a new and separate company. Phoenixing activities are estimated to cost the Australian economy between $2.9 billion and $5.1 billion annually.

The introduction of DIN’s will enable regulators to:

    1. Better understand how specific individuals and entities are connected
    2. Track directorship history by individual
    3. Identify and flag entities and individuals presenting high risks for phoenixing.

Directors details currently are registered with the Australian Securities and Investments Commission (ASIC) but there has been no legal requirement for ASIC to verify the identities. As a result:

    1. With some records, details submitted are obviously fake – are Mickey Mouse and Porky Pig really directors of Australian businesses?
    2. Many directors have multiple ASIC records due to variations in their name or address.

The new requirements provide for proper verification of director’s identities and a single, centralised record for each individual director.

Below we answer some common questions around the introduction of DIN’s.

      What are the key requirements under this legislation?
      The key requirements the legislation introduces are:

        1. Persons must obtain a DIN before they consent to act as a director, or on being directed to do so by the registrar
        2. Existing directors must obtain a DIN within a specific time frame from commencement of the act
        3. Persons must not deliberately apply for multiple DIN’s, provide false information to the registrar or misrepresent a DIN.

      Who will be required to obtain a DIN?
      The legislation requires each “eligible officer” of a “registered body” to obtain a DIN. Broadly, this would include appointed directors and acting alternate directors of companies that are registered under either the Corporations Act 2001 (Cth) or the Corporations (Aboriginal and Torres Straight Islander) Act 2006 (Cth). Also, the registrar in charge of administering the DIN requirements can direct a person to apply for a DIN.

      At this stage the DIN requirement does not cover unincorporated entities (such as unregistered joint ventures or partnerships), de facto directors, shadow directors or company secretaries. However, the legislation does provide for the Minister to extend it to cover those should it become necessary.

      How do I obtain a DIN?
      Once the act has commenced, director’s will need to apply to ASIC for a DIN. Once ASIC has verified the director’s identity, they will issue a DIN.

      At the moment there is no immediate need to (or actual way to) apply for a DIN as the act has not commenced.

      When will the legislation commence?
      A date is yet to be announced by proclamation. If one is not announced within two years of the act receiving Royal Assent, which would be 22 June 2022, it will automatically come into effect then. The Australian Financial Review had reported the act was “expected to begin in the first half of 2021,” however this has not been proclaimed yet.

      What if I don’t register?
      There will be significant civil and criminal penalties for breaching DIN requirements such as failing to apply for a DIN within the specified period or if directed by the registrar, applying for multiple DINs and/or misrepresenting a DIN.

We will advise clients when a commencement date for DIN’s is proclaimed. In the meantime if you have any questions we would be happy to discuss this with you – call us on 03 5339 3200 or contact us here.

Thanks for reading.

The information contained on this website has been provided as general advice only.  The contents have been prepared without taking account of your personal objectives, financial situation or needs.  You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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