Australia: Director Identification Numbers come into force with the Aim of Curbing Phoenix Activity

Authors: Sarah Younis and Maria Markoulli

The Australian Federal Government introduced a suite of 5 pieces of legislation as part of its Modernising Business Registers Program, with the operative legislation being the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth) (MBR Act).

There are two key implications of the MBR Act:

1. The consolidation of 31 Commonwealth registers administered by the Australian Securities and Investments Commission into a single digital registry system called the Australian Business Registry Services (ABRS). The ABRS will be administered by the Australian Taxation Office.
2. The introduction of the Director Identification Number (DIN). A DIN is a 15-digit identification number used by each eligible director as proof of their identity.  Applications for DINs opened from 1 November 2021.

The Purpose of the DIN Regime

The main purpose of the new DIN regime is to deter and penalise phoenix activity (i.e. when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring assets to another company).

The DIN will be a unique identifier that will remain with each director forever, even if they cease to serve as a director. The intent is that such an identifier will provide traceability and transparency of a director’s relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious names or different identities.

Who Needs to Apply for a DIN?

The DIN requirement applies to all directors and alternate directors of registered companies under the Corporations Act 2001 (Cth) (Corporations Act) and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (Corporations ATSI Act).  This includes all existing and new directors and alternate directors of public companies, proprietary companies, corporate trustees and charities with no exceptions for dormant companies.  Importantly, the only person that can apply for the Director Identification Number is the director themselves.  It cannot be completed by a company representative, lawyer, ASIC agent or any other representative.  Directors may apply for a DIN online using their myGovID, by phone, or in writing to the Australian Business Registry Service.

Relevant Deadlines

In accordance with the Corporations (Director Identification Numbers – Transitional Application Period) Instrument 2021, a transitional application period will apply between 4 April 2021 to 30 November 2022 under the Corporations Act and between 4 April 2021 to 30 November 2023 under the Corporations ATSI Act.

The following deadlines apply to different types of directors:

• Existing directors appointed before 31 October 2021 have until 30 November 2022 to apply.
• New directors appointed between 1 November 2021 and 4 April 2022 must apply within 28 days of their appointment.
• New directors appointed after 5 April 2022 will need to apply before being appointed.
• Directors of corporations registered under the Corporations ATSI Actwho are appointed before 31 October 2022 will have until 30 November 2023 to apply.

Consequences of Non-Compliance

Directors who fail to meet their DIN obligations will be subjected to civil and criminal penalties, including an infringement notice.  The maximum criminal penalty for failing to apply for a DIN prior to appointment or within the relevant applicable period would be a fine of 60 penalty units (equivalent to $13,320 at the current penalty unit rate of $222).  There are also various offences associated with the DIN under the Corporations Act.  For example, it is an offence if a director already has a DIN but applies for another DIN and such conduct can result in imprisonment.  It is also an offence for a director to misrepresent their DIN.

Key Action Points for Human Resources and In-house Counsel

Steps Directors should be advised to take

In order to comply with the new rules, directors should be advised as follows:

1. For new directors appointed from 1 November 2021, gather all necessary personal identification documents and apply for a DIN by no later than 28 days of their appointment; and
2. For directors who were appointed before 31 October 2021, they have a longer period within which to apply for their DIN (i.e. 30 November 2022). However, it is recommended that these directors nonetheless submit their applications in a timely fashion.

The interaction between DINs and the ABRS

The new ABRS system will be gradually established between 2021 and 2024.  The DIN is the first step in the process launched on 1 November 2021.