New Director Identification Number Regime - The Fight Against Phoenixing
Legislation relating to the new Director Identification Number (DIN) regime was passed without amendment on 12 June 2020.
The legislation introduced new director requirements and a consolidated Commonwealth business registry.
What is a DIN?
A Director Identification Number is a unique identifier that a director will keep forever. It is hoped that the DIN will prevent the appointment of fictitious directors and facilitate traceability of their profile and relationships with companies over time.
What has prompted this new legislation?
The main purpose of the legislation is to combat illegal phoenixing activity and following that to make directors accountable.
Phoenixing activity is the process whereby controllers of the company deliberately avoid paying company liabilities, transfer the assets of the company to another company and then liquidate the initial company.
According to the Explanatory Memorandum to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Commonwealth) illegal phoenixing activity has cost the Australian economy up to $5.1 billion.
A practical benefit of the DIN regime is that a liquidator should have better prospects of locating a director in order to obtain a company’s books and records for the purpose of the liquidator's statutory investigations.
When will the new regime begin?
The new DIN regime will commence on a day or days to be fixed by proclamation which is expected to be in January 2021. However, with the Government facing unprecedented challenges caused by the Coronavirus pandemic, it looks like this may only be in operation by 2022. This may have the effect of delaying director appointments.
How does a director obtain a DIN?
As soon as the regime becomes operational, a person who is appointed director within the first 12 months of the new regime’s operation will have 28 days to apply for a DIN. However, after this transitional period ends, a director must apply for a DIN prior to being appointed as a director or within a later period as may be allowed by the Registrar or the regulations. This may have the effect of delaying director appointments.
Directors will be required to submit personal identification documents to the Australian Securities and Investments Commission.
Directors will be allocated a permanent and unique DIN which will remain with the director even though if they cease to remain in this position. This allows for traceability of a director’s relationship across all companies.
The legislation includes criminal and civil penalties for directors that fail to apply for a DIN within the prescribed period.
There are also penalties for applying for multiple DINs or misrepresenting a DIN.
It is thus critical for companies and directors to be aware of their obligations and prepare in advance for these changes to ensure compliance before the legislation takes effect.
If you have any queries regarding how these changes may impact you or your business, please contact us on 9212 1099.