All current and future directors of Australian and registered foreign companies will soon need to verify their identity and be issued with a Director Identification Number (DIN) under new anti-phoenixing laws recently passed by the federal Parliament. The DIN scheme is part of a comprehensive package of legislative reforms designed to consolidate and simplify existing business registration frameworks and to deter and penalise persons who engage in illegal phoenixing – estimated to cost the Australian economy up to $5 billion annually. Phoenixing is when directors of an indebted company at risk of insolvency transfer its assets to a new entity and commence the same business activities through that new entity to avoid paying the indebted company’s liabilities. Phoenixing substantially impacts: Creditors of indebted companies – who fail to receive payments for goods and services Employees of indebted companies – through lost wages and superannuation entitlements The general public – through lost revenue to the Government. The scheme will be implemented under amendments to the Corporations Act 2001 (Cth) and is expected to commence in the first half of 2021. Under the new scheme a single unique numerical identifier will be allocated to each Australian director. The DIN will remain with that director across all current and future directorships. The scheme will be implemented under amendments to the Corporations Act 2001 (Cth) and is expected to commence in the first half of 2021. Who is affected? Once the scheme commences, all ‘eligible officers’ (i.e. newly-appointed and existing directors, as well as alternative directors and any other officers prescribed by the regulations) of registered Australian bodies or registered foreign companies will be required to obtain a DIN within specified timeframes. Directors of unincorporated entities or those acting as shadow or de facto directors will not be required to obtain a DIN at this stage, although the Act allows the Minister to introduce these requirements in the future. The application process While questions remain as to how the identification process will work (in particular for foreign directors): Directors will be required to verify their identity with ASIC. Currently, the Corporations Act 2001 (Cth) requires directors to lodge their details with ASIC. It does not, however, require the regulator to verify the identity of directors. A verification mechanism will be introduced as part of the DIN scheme which will improve the integrity of data received by ASIC from directors and assist with enforcement action for illegal phoenixing. Directors who have had their identity verified will be issued with a DIN. The DIN will remain with the director regardless of any changes in appointments across companies and directorships, providing greater transparency and traceability to regulators. It will also allow better identification of high-risk individuals and companies and those who engage in repeated instances of unlawful behaviour or illegal phoenixing activity. If a company or director fails to notify ASIC of a director’s resignation within 28 days of it occurring, then the resignation will now be deemed to occur on the day ASIC receives notice. This prevents directors from backdating their resignation to avoid liability or culpability for acts or omissions occurring within that period. Timeframes to apply for DINs Existing company directors – ASIC will notify existing directors of the requirements and timeframe to apply for their DIN under the new scheme once the application system has been developed and implemented. An application must then be made by existing directors within the timeframe specified by the Registrar. New company directors – during the first 12 months of the scheme, new directors will have 28 days from the date of their appointment to verify their identity and obtain a DIN. After the transition period, new directors will have to obtain a DIN prior to being appointed as a director. Penalties for failing to comply There are significant civil and criminal penalties for directors who fail to apply for a DIN within the required timeframe and for conduct that would otherwise undermine the new DIN requirement (for example, for directors who deliberately provide false identity information to ASIC or apply for multiple DINs). The Registrar may also issue infringement notices in relation to such conduct. Take away messages Individuals who have director appointments over a number of companies will need to take steps to obtain their DIN within the required timeframe once the scheme commences. Any company which seeks to appoint new directors will need to ensure that those directors who do not already have a DIN obtain one prior to their appointment becoming effective. Any director wishing to resign their director appointment will need to ensure relevant registrations are made within the required timeframe of their resignation.
