In an attempt to prevent the use of fictitious identities and combat illegal phoenix activity by company controllers, the Federal Government recently passed the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Bill).
The Bill amends the Corporations Act 2001 (Cth) (Act) and gives effect to company directors now having to apply and hold a Director Identification Number (DIN).
What is a Director Identification Number?
DINs will allow companies to identify all board positions held by a director in order to identify involvement in failed companies and trace a director’s relationships across all companies. The use of DINs will also assist external administrators and other government regulators to investigate a director’s conduct in any potential unlawful activity.
Who does this apply to?
All directors will be required to obtain a DIN which will permanently remain with them as they move between companies and directorships until they cease their role as a director. A director is only permitted to apply for one DIN.
The new DIN regime will be administered by a registrar who will be appointed by the relevant Minister. Only the registrar will be allowed to cancel or reissue a DIN. Even if a director ceases its appointment, the director’s DIN will remain active until the registrar has cancelled it.
Will there be exemptions?
There will be certain exemptions to the new DIN regime, the details of which have yet to be revealed.
The registrar in its discretion, will have the power to, among other powers, provide particular directors with additional time to apply for a DIN depending on their circumstances and may also exempt a person or class of persons where the requirement for a DIN would be unsuitable or have consequences.
What you need to do
There will be a transitional period applicable to directors who were appointed prior to the new DIN regime being introduced, which will be specified by a legislative instrument made by the Minister. There will also be an exception for all directors to apply for a DIN within 28 days of their appointment who were appointed within the first 12 months of the new DIN regime.
Prior to being appointed as a director, it will be a requirement to apply for a DIN. In order to successfully obtain a DIN, verification of identification will be necessary. While the requirements for this is yet to be confirmed, it has been suggested that the registrar will require a director to provide the usual 100 points of identification. It has also been suggested that a person’s tax file number could be used by the registrar in verifying the person’s identity, if the person was to provide it accordingly.
At present, directors of unincorporated entities or persons acting as de factor or shadow directors will not be required to apply and obtain a DIN. The legislation does however provide the Minister with the discretionary power to introduce these requirements at a later date.
What are the consequences of not applying for a DIN?
There will be civil and criminal penalties for those who fail to apply for a DIN within the prescribed time frame. Penalties will also apply if a director is caught providing false information or applying for multiple DIN’s, as this conduct also constitutes a contravention of the Act.
Penalties will vary depending on the severity of the breach, and majority of the penalties will attract personal liabilities for directors. However, directors are not the only ones liable to receive a penalty, as a contravention of the new DIN regime will also see body corporates liable in certain instances.
If a body corporate is found to be in contravention of the new DIN regime, the maximum civil penalty will be either:
- the greater of $10.5 million;
- three times the benefit derived or detriment avoided because of the violation; or
- 10% of the annual turnover of the company, capped at a maximum of $525 million.
If a director or body corporate breaches the new regime and the registrar deems it to be a minor breach, the registrar may issue an infringement notice.
Will there be defences for non-compliance?
There will be defences available for directors failing to apply in certain instances. For example, if a director has failed to apply for a DIN prior to their appointment, they may argue that:
- the person was appointed as a director without their knowledge or consent; or
- the person applied for a DIN prior to their appointment however the registrar has not yet processed their application and issued them with a DIN.
When will the new DIN regime commence?
There is much speculation around when the new DIN regime will commence, with some suggestion of the first half of 2021. What is certain, on receiving royal assent on 22 June 2020, the new DIN regime is to be implemented before 23 June 2022.
In the meantime, we advise companies and directors to stay up-to-date with these proposed changes and to prepare themselves to comply with the necessary changes prior to the legislation taking effect.
If you require further information on the introduction of DINs, or advice relating to company director responsibilities, please contact Jeremy Goldman, Principal Lawyer and Head of Commercial and Corporate, on (03) 8600 8886, Darren Brown, Principal Lawyer, on (03) 8600 8867, or Roger Rothfield, Special Counsel, on (03) 8600 8844.
Note: This update is a guide only and is not intended to constitute legal advice.