In wake of the Banking Royal Commission, the Federal Government passed a number of laws to tighten corporate governance and create the Modernising Business Registers (MBR). The MBR will streamline the 34 current business registers into one platform, providing increased transparency and a more user-friendly registry service.
The Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth) received royal assent on 22 June 2020 as a part of the MBR program and introduced a requirement for all Australia directors to have a unique Director Identification Number (DIN). The DIN regime will commence on a day to be fixed by proclamation or within two years from the date of Royal Assent.
This requirement aims to combat corporate phoenixing which occurs when controllers of an indebted company transfer its assets to another company before shutting it down to deliberately avoid paying its liabilities. Phoenixing impacts creditors who fail to receive payment, employees through lost wages and superannuation, and the public through lost revenue to the Government. Phoenixing is estimated to cost the Australian economy between $2.9 billion and $5.1 billion annually.
The DIN application requires all directors to confirm their identity. A director’s DIN is unique and permanent, even if a person ceases to be a director. The DIN will facilitate a higher level of traceability of directors’ relationships across companies and prevent the use of fictitious identities or multiple registrations with slight changes such as a middle name or alternative spelling which makes searching across registries difficult. The DIN will also provide a more effective system for tracking the corporate history of directors for administrators and liquidators, thereby increasing the efficiency of the insolvency process.
A person must apply to the registrar for a DIN before they are appointed as a director unless an exemption or extension applies. Existing directors will be required to apply for a DIN within a prescribed period after being directed to do so by the registrar. There are civil and criminal penalties for directors who fail to comply with DIN requirements or who intentionally apply for multiple DINs, including imprisonment for up to 12 months. Not holding a DIN is a strict liability offence.
The legislation provides a transitional period of 12 months after the regime becomes operational whereby a new director will have an additional 28 days to apply for a DIN following their appointment. After this transitional period ends, new directors will be required to apply for a DIN prior to being appointed.
The new regime introduces an additional layer of compliance to corporate administration and may delay the appointment of directors if companies are unprepared for the transition.
It is unclear how effective the DIN requirements will be in curbing illegal phoenix activity, however, the MBR and DIN regimes are proactive steps by the Federal Government to modernise the existing business registry scheme, providing greater transparency and increase directors’ accountability.
Please let us know how we can assist you or your company in complying with the DIN requirements.