The Australian Government introduced draft legislation in October 2018 to modernise the Australian business registers and to provide a legal framework for director identification numbers (DIN).
Who is affected?
You are required to apply for a DIN:
• Within 28 days of being appointed as an eligible officer; or
• Within 15 months if you are already an existing eligible officer; or
• Within 28 days if you are directed to do so by the Registrar.
An eligible officer includes a director of a company, or of a body corporate that is a registered Australian body or registered foreign company who:
a) is appointed to the position of a director; or
b) is appointed to the position of an alternate director and is acting in the capacity (regardless of the name given to that position).
However if you are going to be an eligible officer within 12 months, you are still permitted to apply for a DIN as long as you become an eligible officer within that time frame.
What are the consequences for not obtaining a DIN?
If you do not apply for a DIN and are an eligible officer, or you are directed by the Registrar to apply for a DIN and you do not apply within 28 days, you are subject to an infringement notice and potentially a civil penalty.
Furthermore, if you apply for more than one DIN or you intentionally misrepresent a DIN to a government or registered body you will be subject to more severe civil penalties.
How will the Registrar process Director Identification Numbers?
The Bill states that the Registrar must be satisfied that the applicant’s identity has been established before allocating that person a DIN. If the person’s identity is established and the DIN is granted, the Registrar will keep a record of that person’s DIN regardless of the individual businesses that the person moves between.
The process for obtaining a DIN is still being developed. Interested parties are encouraged to contact the Government to express their views on the implementation of the DIN and associated processes.
When will it be enforceable?
The Bill will become enforceable once the legislation is passed by Parliament. A timeframe regarding when the Bill will be introduced to Parliament is still to be determined, but it is anticipated in the near future.
Why is it being introduced?
The purpose of the proposed DIN system is to assist with the traceability of Australian business directors and consequently crackdown on ‘phoenixing’. Illegal phoenix activity occurs when a new company is created to continue the same business as its predecessor, while the first company is liquidated to avoid meeting its obligations. DINs are individualised so that when an individual is no longer the director of a specific company, they still retain the same DIN and are therefore always traceable. The Government’s Phoenix Taskforce estimated that this illegal activity is costing the Australian economy between $3 billion to $5 billion each year. On this basis, the aim of the legislation is to improve the integrity of the Australian business community and provide a level playing field for all Australian business owners.
Currently, ASIC and creditors have to deal with directors giving false information about their personal identity (including using different birthdates and spellings of names) making it more difficult to track them down if necessary. The Government’s primary aim is that this new system will not only assist in finding illegal activity; specifically in relation to illegal phoenix activity, but that it will also act as a preventative and proactive measure.
To further understand how this legislation may affect your business, or if you wish to make a submission on the planned implementation of the DIN and associated processes, our experienced commercial lawyers can assist.