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Director Identification Number Passed to Combat Illegal Phoenixing

Posted by Revive Financial on Aug 21, 2020 2:00:00 PM

The Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 was passed by the Australian Government on 22 June 2020 which introduces the use of a Director Identification Number (DIN) for all company directors in Australia. The DIN will require directors to confirm their identity and will be a permanent unique identifier for each director.

Currently, a company director is required to lodge their details with the Australian Securities and Investments Commission (ASIC). However, only a name, address and date of birth are required to register and ASIC is not required to verify a director’s identity – resulting in a number of fake company owners in Australia, including Bob Marley, Homer Simpson and Elvis Presley.

On 17 October 2019, ASIC Commissioner John Price in an ASIC regulatory and enforcement update said that the DIN will identify directors with a unique number, but it will be much more than just a number. The DIN will interface with other Government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people.

Why is a Director Identification Number Necessary?

The main purpose of introducing a Director Identification Number is to reduce illegal phoenix activity in Australia. The Australian Taxation Office (ATO)’s Economic Impact of Potential Illegal Phoenix Activity 2018 Report found that illegal phoenix activity costs employees between $31 and $298 million in unpaid employee entitlements and costs the Australian Government around $1,660 million in unpaid taxes and compliance. Illegal phoenix activity is the process of stripping a company of its assets then liquidating the company, leaving creditors with no assets to be realised. At the same time, another entity is created to which the assets are transferred for little or no consideration and the company continues to trade.

It will also help to improve the efficiency of the insolvency process by making it easier for administrators and liquidators to track company directors and their corporate history, and increase data integrity and security, allowing company directors to be identified by a number rather than by other more personally identifiable information.

When is a Company Director Required to Apply for a Director Identification Number?

As per the explanatory memorandum, the new law provides for two categories of persons who may apply for a DIN.

  1. You must apply for a DIN if you are currently a director of a company. In this case, transitional provisions apply. During the first 12 months of the operation of the new requirement, a person who is appointed as a director will have 28 days to apply for a DIN. This means that for the first 12 months once from the effective Bill date, a director must apply for a DIN within 28 days of being appointed as a director.
  2. If you are not currently a director but intend to become a director within 12 months, you need to apply.

Civil and criminal penalties apply if you are a company director and don’t apply for a DIN within the designated time frame.

Where Will the New Information be Stored?

Introduced with the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, the Commonwealth Registers Bill 2019 enables the creation of a new business registry that combines 35 existing registers together into a more simplistic, user-friendly design. This includes ASIC’s Australian Company Numbers (ACN) registry, with more than 2.7 million registered companies as at May 2020.

When will it Commence?

The Bill received Royal Assent on 22 June 2020. As outlined in the Bill itself, the DIN regime and the new business registry will commence 2 years after Royal Assent or on such earlier date as may be proclaimed by the Governor-General, which is expected in early 2021.

Topics: Director Advice

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