Directors will now be required to hold a director identification number (“DIN”). The obligation to obtain a DIN comes as the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (“the Act”) received royal assent on 22 June 2020. The DIN scheme is part of a number of Commonwealth Government initiatives to promote good corporate conduct and address unlawful behaviour. The obligation to hold a DIN is expected to commence within the next two (2) years, however, the exact commencement date is yet to be advised.
What is a DIN?
A DIN is a unique identifier for each person who consents to be a director. In order to ensure the integrity of the new requirement, it is not intended an individual will have more than one DIN. Applying for more than one DIN is an offence under section 1272G of the Corporations Act 2001 (Cth) (“Corporations Act”).
The DIN will provide traceability of a director’s relationships across companies which will enable better tracking of directors’ of failed companies and prevent the use of fictitious identities. Regulators and external administrators will be able to investigate a director’s involvement in unlawful conduct such as illegal phoenix activity. This amendment also provides a verification aspect that has not previously been used. The verification of a director’s identity through a DIN will improve the integrity of the data and assist in the enforcement action associated with phoenixing.
What are directors required to do?
This new requirement will apply to all new and existing Australian company directors of bodies corporate registered under the Corporations Act and the Corporations (Aboriginal and Torres Strait Islander) Act 2006, including foreign directors and alternate directors.
Directors appointed prior to the implementation of the Act must apply for a DIN upon direction from the Commonwealth Registrar. The prescribed period to apply may be determined by the Commonwealth Registrar and if it is not specified, the period will be 28 days from the date of the direction given as noted in Section 1653 of the Corporations Act.
Individuals must apply for a DIN prior to being appointed as a director. Once the director’s identity has been verified, the Commonwealth Registrar will then provide the director with a permanent DIN, which the individual will retain even if they cease to be a director.
Under section 1272E of the Corporations Act, the Commonwealth Registrar may extend application periods for a director to obtain a DIN however, this will be assessed based on the application of the director.
A director will be subject to civil and criminal penalties if they have not obtained a DIN within the prescribed timeframe.
The introduction of the DIN was first announced by the Commonwealth Government in September 2017 with the aim of deterring and penalising phoenix activity in order to protect those who were negatively affected by such fraudulent conduct. Illegal phoenix activity occurs when the controllers of a company shut down the company and transfer its assets to another company in order to avoid paying the company’s liabilities. It is estimated that phoenixing costs the Australian economy between $2.9 billion and $5.1 billion annually. The requirement introduced in the Act was given Royal Assent on 22 June 2020.
- Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020;
- Corporations Act 2001 (Cth).
The introduction of this new requirement will assist regulators in better detecting, deterring and disrupting phoenixing and improve the integrity of corporate data maintained by the registrar.
If you are a director and require assistance applying for a DIN, please contact us.