Legislation which has recently been passed by the Federal Government and due to come into effect from early next year will require all Australian directors to register with ASIC and be issued with a Director Identification Number (DIN). Not only will this legislation require companies to amend their current practices and procedures in relation to appointing new directors, the regime will assist in the tracing and prosecution of Phoenix activity and other director related offences.
What is the director Identification Number (DIN) system
On 12 June 2020, the Federal Government passed the Treasury Laws Amendment (Registries Modernisation and other Measures) Bill 2019. The Bill is being introduced as part of the Federal Government’s Modernising Businesses Register Program and is currently expected to take effect in the first half of 2020. The regime requires every Australian director to register and be issued with a DIN.
At the commencement of the regime, there will be transition period of 12 months. During the transition period all existing directors will need to register within a period prescribed in the legislation and all new directors will need to register within 28 days of their appointment. After the transition period all new directors will be required to register before they are appointed as a director.
The DIN regime will also extend to foreign companies registered within Australia.
How will the DIN Regime impact business?
The regime is aimed to streamline current processes and procedures and may prove useful in preventing minor discrepancies in director names and details kept on various documents and registers.
Companies will need to ensure their policies and procedures are updated so that identity verification requirements are met for all directors before they are appointed to a director position. The verification of identity requirements are yet to be made known.
The regime comes with strict penalties for non-compliance, and any director who fails to register within the required period may be removed from the ASIC register and subject to penalties. Directors who misrepresent their DIN or attempt to use multiple DINs could be liable for up to 12 months imprisonment and any individual involved in assisting the misrepresentation may be liable for civil penalty fines.
How will the DIN Regime impact anti-phoenixing legislation?
Phoenix activity refers to a situation where a new company is created to continue the business of a formerly existing company which has been placed into liquidation to avoid paying its debts, which often includes taxes and employee entitlements. It is currently estimated that phoenix activity has resulted in an annual cost to the Australian economy of somewhere between $2.85 billion and $5.13 billion dollars.
The DIN regime is set to expand the legislation currently in place to combat illegal phoenixing activity. The regime will allow for the tracing of directors and will make it easier to investigate and prevent repeated and unlawful behaviour. The regime will also potentially make directors more accountable for their past activities.
One issue that our firm recognises may occur under the current regime is an increase use of dummy directors with family members potentially exploited by directors attempting to engage in illegal phoenix activity.
For specific information about your situation please contact us to find out more.
DISCLAIMER: This article is intended to provide general information and should not be relied upon as legal advice. Formal legal advice should be sought if you are concerned about, or require particular advice applicable to your specific circumstances in relation to, any topics covered in this article.