Australia: What is the company director tracking system?

This article has been updated in November 2021, see here.

A company director is responsible for managing the business affairs of, and owes various fiduciary duties to, their appointed company. To modernise Australian business registers, the Australian government has introduced a new company director tracking system, the Director Identification Number (DIN). Once the Australian Taxation Office (ATO) confirms a person's identity, they will receive a unique DIN. Directors keep this number permanently. A director will be able to use this number across multiple companies for each directorship they hold.

The DIN has received strong support from the Australian Securities and Investment Commission (ASIC). They believe it will greatly benefit regulators and individuals doing business. It will help provide greater security and modernise the way director information is collected. This article will explain how the company director tracking system works in Australia.

Why is the DIN Being Introduced?

Directors play a crucial role in ensuring that companies are run legally and do not engage in conduct that will damage the Australian economy.

Illegal phoenixing has become a widespread problem in the Australian insolvency space. Phoenixing describes the situation where one company disappears, and the same group of people start another company in its place. A typical reason for doing so is usually because the old company is in financial difficulty. Directors do this by transferring all the company assets to a new company for minimal consideration. Ultimately, they carry on the old company through the new company.

Additionally, illegal phoenixing activity was a significant issue in the 2015 inquiry into Insolvency in the Australian construction industry by the Senate Economics Reference Committee. To deter and penalise illegal phoenixing, the Government in 2017 announced a package of reforms. One such reform is the DIN regime.

The current legislation and technology do not cater for director identification, noting the following:

• ASIC does not verify the identity of directors, and they take the information at face value;
• directors may have multiple records within ASIC systems. For instance, a director could have multiple unlinked records with slight variations of their name, address and personal details;
• there is limited transparency of relationships between directors and multiple companies; and
• there is little interaction between ASIC and individual directors.

DINs aim to reduce illegal phoenixing activity by ensuring the ATO can properly trace directors between organisations.

Every Director Will Need a DIN

The expectation is for the DIN regime to be in full operation by 2022.

The intention is for a new body called the Commonwealth Business Registrar to be set up and administered by the ATO. This will be the body responsible for verifying the identity of directors and administering the DIN regime. As of May 2021, the government has not yet appointed a Registrar or detailed the ID documents required to be submitted by directors to obtain a DIN.

Once the DIN requirements take effect, all directors will require a DIN. The DIN regime will commence with a transitional period applying from the date on which the Commonwealth Business Registrar is established (or such other date prescribed by the regulations), with the following to apply:

• existing directors will need to apply for a DIN within the period to be prescribed by the Registrar (as of May 2021, Parliament has not prescribed this timeframe); and
• new directors appointed within the 12 month transitionary period will be required to apply within 28 days of their appointment.

After the 12 month transitional application period has expired, new directors must register for a DIN before being appointed or within any later period provided by the Registrar or the regulations.

Compliance With the DIN Regime

Directors must comply with the DIN requirements once the regime commences. There will be significant civil and criminal penalties for directors who do not comply. If a director of an organisation registered under the Corporations Act fails to apply for a DIN within the applicable time frame, they may face significant civil penalties.

Other large civil and criminal penalties are associated with actions that undermine the DIN regime, such as providing false identification documents.

Current and future directors will need to turn their minds to these new penalties. If you are a director, ensure you stay up to date with the new DIN laws to ensure that you obtain a DIN once required.

Key Takeaways

The introduction of the DIN regime will provide greater transparency and security for directors and people interacting with companies alike. As part of this:

• there will be increased confidence in the company's register and the accuracy of the company's register;
• both director and company data will be stored together, increasing the accuracy and usefulness of the data;
• ASIC will identify which companies a director is linked to and changes to directorships over time, increasing transparency; and
• there will be flexibility and an integrated user experience with both authorised directors and companies able to interact with the registrar online in a more modern system.