Coming soon – Director Identification Numbers

In October 2018, the Commonwealth Government released the Treasury Law Amendment (Registries Modernisation and Other Measures) Bill 2018 (Cth) (“Bill”) for consultation. Among other things, the Bill introduces the requirement of a unique Director Identification Number (“DIN”) for each appointed director of a registered body corporate.

The requirement of a DIN will enable regulatory bodies to track individual directors and the relationships they have with companies within Australia. The introduction of DINs forms part of the Commonwealth Government’s recent initiatives to investigate, deter and penalise controllers of companies who engage in illegal phoenixing activity. The intended result is to increase protection for stakeholders and encourage good, lawful corporate conduct.

The following obligations are introduced:

1. Newly appointed directors of companies will have 28 days to apply for a DIN when the law comes into force. Prospective directors will have the option to apply for a DIN before their appointment;

2. A transitional period of 15 months will be allowed for existing directors of companies to apply for a DIN from when the law becomes enforced;

3. A person is prohibited from applying for multiple DINs.

4. A person is prohibited from misrepresenting a DIN to a Commonwealth body or a registered body.

The requirement to establish a director’s identity will improve the integrity of the current system and combat directors seeking to create fraudulent and fictitious identities. All directors will be required to apply for a DIN, including directors serving for one day or an interim period and directors of foreign registered companies. The proposal, however, will not capture shadow directors or de facto directors.

The Registrar will be empowered to administer the DIN regime including the method that the identity of directors would be verified. At this stage, the design and stringency of the identity verification process is unknown.

Critics of the Government’s proposal have raised concerns about the privacy of directors and the requirement being an additional barrier to participation in the free market.

The Bill imposes civil and criminal penalties to any contraventions of the DIN regime including failing to apply for DIN. Warnings may first be sent as an infringement notice to not create a backlog within the judicial system. The following penalties apply:

Non-compliance

Misrepresenting a DIN

>     Civil penalty - up to $200,000 for an individual, or $1 million for a body corporate

>     Criminal penalty - up to 100 penalty units or imprisonment for 12 months, or both

Requirement to apply for a DIN within 28 days of appointment

>     Civil penalty - up to $200,000 for an individual; or $1 million for a body corporate

>     Criminal penalty - up to 60 penalty units (strict liability)

Applying for any additional DINs

>     Civil penalty - up to $200,000 for an individual; or $1 million for a body corporate

>     Criminal penalty - up to 100 penalty units or imprisonment for 12 months, or both

Involvement in a contravention of the obligations

>     Civil penalty - up to $200,000 for an individual; or $1 million for a body corporate 

These reforms come at a time when the Commonwealth Government has increased its focus on obstructing illegal phoenix activity through the use of dedicated support hotlines and increasing powers of the Australian Tax Office.

We recommend both companies and directors closely follow the legislative updates as there will be time limits imposed and penalties applicable for non-compliance.

Gavin Parsons and Associates can assist you with any questions you have regarding Commercial and Business Law. Please contact us today on (02) 9262 4471.


gavinparsonsadm

Date posted: 2019-03-12