The federal government is bringing in a new regime whereby every company director will be assigned a lifetime unique “Director Identification Number” or “DIN”.
One of the driving forces behind this new regime is to combat phoenixing. Phoenixing is when directors deliberately avoid paying liabilities by shutting down the company and transferring any assets to a new company. The aim of the new regime is to help prevent fictitious directors, make directors more accountable for their activities and to enable tracing and potential prosecution of directors of failed companies.
Currently ASIC is not required to verify the identity of directors and with 35 different business registries, unscrupulous directors can more easily hide by having multiple records (each differing slightly) across these registries. The issuing of DINs forms part of a larger suite of reforms to amalgamate these different registries into one.
Do I need a DIN?
The DIN regime will apply to all company directors. Once allocated, the DIN is for life and will remain with you as director for all current and future directorships. You cannot have more than one DIN and there are penalties (see further below) if you do so.
When do I have to apply for a DIN? Watch this space.
Not yet but preparation is key.
The new federal laws* were passed on 12 June 2020 and it is anticipated will come into force sometime in the first half of 2021. Although, given the challenges facing our federal government in dealing with the impacts of COVID-19 and the practical reality behind amalgamating 35 business registers administered by ASIC to one new modernised platform, this remains to be seen.
However, once the laws are in force:
- During the 1st twelve months, directors will have 28 days to apply for a DIN after their appointment. Thereafter, all directors must apply (if they don’t already have one) before being appointed as a director.
- Existing directors will have a grace period within which to apply for a DIN. At this stage, we do not know how long that period will be.
How can our business prepare for the new regime?
Full details are yet to be released on what information will be required to apply for a DIN.
The new regime does present some practical challenges, particularly if proper planning is not in place.
For example, some company constitutions allow for alternate directors to be appointed as “substitute directors” for a specified period of time and can be used as a temporary measure in the event a key director is unable to perform their duties. How then can the business avoid falling foul of the new laws if the person you wish to appoint does not have a DIN? Under the new laws, prospective directors may apply for a DIN up to 12 months prior to appointment. After 12 months if they have not been so appointed, this will lapse and will need to apply again.
In these circumstances, the Board should give careful consideration and forward planning of key people within the business that are most likely to be appointed if required on an urgent basis and to have them apply for a DIN. Similarly, this could potentially also help avoid delays in any Board appointments. Think of it as having a pool of potential directors that the Board can turn to as and when required. Of course, at this stage, we do not know what fees (if any) will be charged to apply for a DIN and this may have an impact on how “large” that pool of backup directors may be.
- All company directors will be required to have a DIN.
- The key drivers behind the new regime is director traceability and prevention of phoenix activities.
- According to a criminal defense attorney, there are substantial criminal (potentially up to 12 months imprisonment) and civil penalties for failing to comply with obligations under the new regime.
If you are unsure of what your obligations are under this new regime, please seek legal advice. You can contact us on (07) 3160 0000 or at email@example.com.
* Schedule 2 to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 amending the Corporations Act 2001 (Cth) and theCorporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) for the purposes of DINs. This Bill forms part of a suite of new bills designed to create a new Commonwealth business registry regime that will be governed by a new Act called the Commonwealth Registers Act 2019 (Cth).
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.