On 12 June 2020, the Federal Parliament passed the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, which establishes a lifetime registration system for company directors with the aim of combating illegal phoenix activities.
Any person seeking to become a director of a registered company will be required to first apply for a Director Identification Number, or “DIN” for short, and have their identity confirmed.
The director will keep the same DIN for life even after they cease to be a director of one company and are appointed as a director of another. Presently, directors could have multiple entries in ASIC’s registers if there are variations in their personal details.
The new identity system is expected to begin in the first half of 2021, following development of the technology.
The DIN regime is aimed at preventing repeated unlawful behaviour, called ‘phoenixing’, as well as making directors more accountable for past activities.
What is ‘phoenixing’?
Phoenixing is where directors shut down a company and transfer assets to a new company to avoid paying debts and liabilities.
In July 2018, PricewaterhouseCoopers Consulting (Australia), after having been engaged by the Australia Taxation Office, Fair Work Ombudsman and Australian Securities and Investment Commission to examine phoenix activity, released ‘The Economic Impacts of Potential Illegal Phoenix Activity’ report which estimated that the annual cost to the Australian economy as a result of phoenix activity is between $2.85 – $5.13 billion dollars.
Individuals must apply for a DIN prior to their appointment as a director, although for current directors there is a transitional period of 18 months during which they will be required to apply for a DIN.
It is important for companies and directors to be aware of these new obligations and to have processes in place to ensure compliance when the new legislation takes effect.
There are criminal and civil penalties for a director if they:
- fail to apply for a DIN;
- provides false identity information; or
- knowingly apply for a second DIN when one has already been assigned.
For example, the criminal penalties for a director applying for multiple DINs or misrepresenting a DIN could be a maximum of 100 penalty units, or 12 months imprisonment, or both.
The Administrative Appeals Tribunal will have jurisdiction to conduct merit reviews of decisions made by the registrar administering the DIN regime.
Privacy concerns have been raised in respect of the DIN regime by the Australian Institute of Company Directors, although it is anticipated that these concerns will be addressed prior to the introduction of the new identity system.
Need more information?
If you have any questions or concerns regarding how the new DIN regime might affect you or your company, please do not hesitate to get in touch.
Authors
Matt Gauci, Partner & Jessica Egger, Lawyer
