The Commonwealth Parliament recently passed legislation for a new register of directors of Australian companies. Upon commencement of the Commonwealth Registers Act 2020 and amendments to existing legislation, directors will be issued with their own unique Director Identification Number (DIN). The aim of this legislation is to enable better tracking of directors and their corporate histories, and assist with combating illegal phoenixing activity.
The ATO defines illegal phoenix activity as “where a new company is created to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements”. According to the Explanatory Memorandum for the enabling legislation[1], illegal phoenix activity is estimated to cost Australian businesses between $2.9 billion and $5.1 billion annually.
What you need to know
- A new Commonwealth Business Registry to replace the registers maintained by the Australian Securities and Investments Commission (ASIC) and the Australian Business Register (maintained by the Commissioner of Taxation).
- Directors and other officers of body corporates must apply for a DIN and the Registrar will issue a DIN upon verifying the director’s identity.
- A director may only have one DIN, although the scheme does not extend to shadow directors or de facto directors.
- The DIN scheme will apply to corporations registered under the Corporations Act 2001 (Cth) or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth).
- The DIN regime is likely to assist insolvency investigations by external administrators including through enhanced tracking of a director’s involvement in failed corporations, unlawful activities and will combat the use of fictitious identities.
- Whilst there will be transitional provisions in place for the first twelve months of operation, criminal and civil penalties will apply for directors who do not apply for a DIN within the allowed time.
- Until the appointment of the Registrar to the Commonwealth Business Registry, ASIC will remain the corporate regulator.
- The DIN regime is set to commence on a date to be determined, or otherwise on 23 June 2022.
- Once the DIN regime commences there will be a 12-month transition period where:
- once appointed, directors will have 28 days to apply for a DIN, and
- existing directors must also apply for a DIN (although timeframe is yet to be set)
- Following the transition period, new directors will be required to register for a DIN before they are appointed.
The DIN regime is contained in Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, which received assent on 22 June 2020. Whilst reporting on the legislation has included an expectation that the regime would commence in early 2021, it is not clear whether administrative challenges during the COVID-19 pandemic may delay the implementation schedule.
Benefits of a DIN
The DIN regime is included in the a suite of legislation designed to modernise and streamline the way the various registers are maintained. Where registers currently maintained by ASIC and the Commissioner of Taxation may contain duplicate records for the same individual (ie. Joe Smith and Joseph Smith), it will be an offence for an individual to intentionally apply for multiple DINs.
In its submission to the Australian Law Reform Commission’s Discussion Paper on Corporate Criminal Responsibility, the Australian Restructuring Insolvency and Turnaround Association was supportive of the proposed DIN regime as one of the “key ‘puzzle pieces’ which are all required to address illegal phoenix activity.” University of Melbourne Professor Helen Anderson, who has written extensively on the issue of a DIN regime, refers to benefits which include combating the use of fictitious identities, aiding detection of suspicious activity, and better enabling the regulators to ensure that appropriately qualified persons are engaged in the management of a business in accordance with their legal obligations[2].
It is important for companies as well as directors to stay on top of these changes and to prepare processes to ensure compliance before the legislation takes effect. Russell Kennedy will monitor the implementation of these changes, and further updates will be published once the commencement date for the DIN regime is announced.
We regularly advise company directors as to their duties and responsibilities and can provide assistance in navigating the new DIN regime.
How we can help
We regularly advise company directors as to their duties and responsibilities and can provide assistance in navigating the new DIN regime.
If you require further information, please contact Rohan Harris, Walter MacCallum, Joe Denina, or a member of our Corporate and Commercial team or Dispute Resolution team.
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[1] Explanatory Memorandum to the Commonwealth Registers Bill 2019 (Cth); Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Cth); Business Names Registration (Fees) Amendment (Registries Modernisation) Bill 2019 (Cth); Corporations (Fees) Amendment (Registries Modernisation) Bill 2019 (Cth); National Consumer Credit Protection (Fees) Amendment (Registries Modernisation) Bill 2019 (Cth), p 39.
[2] Helen Anderson, ‘Sunlight as a Disinfectant for Phoenix Activity’ (2016) 34(4) Company and Securities Law Journal 257–275