Australian company directors will soon be required to have unique director identification numbers (DIN) following the assent of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth).
The changes form part of the Australian Government's Modernising Business Registers Program which will consolidate the Australian Business Register and 31 registers administered by the Australian Securities and Investments Commission (ASIC) to a single platform which will be known as the Commonwealth Business Registry. The Commonwealth Business Registry will operate on new and improved technology and will streamline key business registry functions to provide more user-friendly, modern registry services.
Currently, ASIC does not verify the identity of directors, meaning directors may have multiple records with ASIC with variations of name, address or personal details. A unique, permanent DIN will make business information more reliable and provide better traceability of a director's relationships across companies. This makes it harder for directors to disassociate themselves with failed companies and to undertake illegal phoenix activity (when the assets of a failing company are transferred to third parties without consideration to avoid paying existing liabilities).
When to apply for a DIN
The DIN regime comes into effect once the new Registrar is appointed to the Commonwealth Business Registry which we expect will occur early 2021.
There will be a 12-month transition period during which:
- New directors will have 28 days from their appointment to apply for their DIN, and
- Existing directors will be given a deadline (still to be announced) by which they must have applied for their DIN.
We note that while the new Registrar is yet to be appointed, it is intended that ASIC will remain the corporate regulator.
Once the regime is fully in place, a person cannot be appointed a director of a company without first securing a DIN. Companies will need to amend their procedures to ensure identity verification and DIN issue for directors before they are appointed. This could make it difficult for companies to appoint new directors on short notice.
We do not yet know the process of obtaining a DIN and what forms of identification will be required to verify identity. We expect it will be a similar application process to existing government digital services such as myGovID with the ATO which uses a points-based system for proof of identification. Meeting the verification requirements might prove problematic and time consuming, particularly for those proposing to be directors of registered foreign companies.
One way of dealing with this would be to apply for a DIN in contemplation of becoming a director. However, a DIN will be automatically cancelled if that applicant is not acting as a director within 12 months.
The criminal and civil penalties for non-compliance of the DIN regime under the Corporations Act 2001 (Cth) will be broadly similar to penalties for comparable provisions.
Under the Corporations Act, Directors without a DIN can face maximum criminal liability of 60 penalty units and maximum civil liability of $1.05M. Directors that apply for more than one DIN or who misrepresent their DIN numbers can face up to 12 months imprisonment in addition to pecuniary penalties.
What you need to know:
- Directors must have their identity verified and apply for a DIN (this includes alternate directors acting as directors and other officers as might be prescribed by regulations).
- Directors can only have one DIN, even if they are directors or officers of multiple companies.
- The regime will prevent the appointment of fictitious directors, and facilitate traceability of their profile and relationships with companies over time.
- The regime extends to Australian body corporates, Aboriginal and Torres Strait Islander corporations and registered foreign companies.
- Directors without a DIN can face maximum criminal liability of 60 penalty units and maximum civil liability of $1.05M.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.