Company Law – Director Identification Numbers are finally here

In the past year, the Federal Government has introduced legislation to minimise illegal phoenixing activities by company directors. As part of the Government’s new legislation, all company directors, including foreign and alternate directors, are required to obtain and hold a Director Identification Number (DIN).

The introduction of DINs has been on the Government’s agenda since 2017 upon the recommendation of the Productivity Commission to introduce them in the Commission’s September 2015 final report into Business Set-up, Transfer and Closure.


What is illegal phoenixing?

Illegal phoenixing occurs when a new company has been set up to continue the business of a company which has been deliberately liquidated in order to avoid paying its debts, including employee entitlements, creditors and taxes.


Rationale behind the new law

The primary objective of the new law is to promote good corporate conduct.

The DIN will require all company directors to verify their identity. The director will keep the unique identifier permanently, even if they are no longer a director. DINs are not intended to be re-issued to someone else or that a single person will be issued with more than one DIN, except under limited circumstances such as where a record may be corrupted. Hence, DINs are designed to provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and preventing the use of fictitious identities and identity fraud. This will accordingly assist regulators and external administrators to investigate a director’s involvement in what may be repeated unlawful activity, including illegal phoenix activity.

The new DIN tracking system will also offer benefits beyond combating phoenixing. For example, simpler, more effective tracking of directors and their corporate history will improve the efficiency of the insolvency process reducing the time and cost for administrators and liquidators. Furthermore, the new regime allows for improved data integrity and security. For example, directors can now be identified by a number as opposed to other more personally identifiable or sensitive information.

Prior to receiving a DIN all directors will be required to confirm their identity, as well as disclosing any civil and criminal penalties for system misuse.

Four new obligations in relation to DINs arise from the creation of this new law:

  1. directors must apply for a DIN prior to being appointed
  2. directors must apply for a DIN within a prescribed period of being directed to do so by the registrar
  3. a person cannot knowingly apply for multiple DINs, and
  4. a person is prohibited from misrepresenting a DIN to a government body or a registered body.


When are DINs coming?

It is expected that DINs will be implemented in the first half of 2021. Indications earlier this year detail that more than $60 million has been put aside to commence development of the business register as part of the government’s ‘new deregulation agenda’ as set out in the 2019-2020 mid-year economic and fiscal outlook.

Further practical challenges however, affect when DINs will be implemented.

Reality demonstrates that combining the Australian Business Register administered by the Australian Taxation Office and 34 ASIC business registers on a modern technology platform with data applicable to an roughly 4 million companies will be a major project which may be a highly convoluted process on a logistics basis.

With the Federal Government having had to deal with the unprecedented challenges brought on by the Coronavirus in 2020, implementing the DIN regime in the first half of 2021 may be optimistic at best. But it is assured that the regime will be operational by 2022.


How to apply for a DIN?

DINs will be administered, controlled and monitored by ASIC.

An “eligible officer”, defined as a director, alternate director or any other officer of a registered body of a kind prescribed by the Corporations Regulations 2001 (Cth), must apply to ASIC for a DIN. Prospective directors may also apply for a DIN within 12 months prior to appointment or if directed by the ASIC Registrar.

An Eligible officer is required to submit prescribe personal information and undergo a 100-point identity verification process with ASIC. Once verified, a director will be issued a DIN from ASIC.


What does this mean for corporations?

Companies must ensure that its directors apply for a DIN within the specified timeframes and that its company records are updated as well.

The new law is a positive step for corporate governance, as it allows companies the opportunity to review its directors’ interests to ensure that they are not engaged in any illegal activities (including phoenixing), have not made any misrepresentations to the Board or hold positions which may be an actual or perceived conflict of interest.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.