From November 2021, all company directors will be required to verify their identity and obtain a unique Director Identification Number (DIN). A DIN will be a unique identification number which will remain with each director, even if they cease to act. The DIN regime will be administered by the Australian Taxation Office (ATO), and applications to be issued with a DIN will be able to be made through the Australian Business Registry Services (ABRS) website.
Rationale
The Commonwealth Government has implemented a number of measures to deter and penalise phoenix activity. Phoenix activity occurs when the directors or other controllers of a company avoid paying that company’s liabilities by shutting that company down and transferring its assets to another company. This often results in creditors failing to receive payments to which they are entitled or employees not being paid wages or superannuation. It is estimated that phoenix activity costs the Australian economy between $2.9 billion and $5.1 billion annually.
It is expected that the DIN regime will further deter phoenix activity. As each DIN will:
- require directors to confirm their identity; and
- be a unique identifier issued to each director – i.e. no DIN will ever be reissued and a director will retain their DIN even if they cease to act,
DIN’s will allow a director’s relationships across different companies to be traced and provide better tracking of each individual director’s failed companies.
Further, prior to the implementation of the DIN regime, there were no requirements placed on the Australian Securities and Investments Commission (ASIC) to verify or confirm the identity of company directors. In some situations, this has led to company directors giving false or fictitious names (even such as Mickey Mouse or Porkey Pig) to ASIC. The verification aspect of DIN’s should result in an increase in the integrity of data held by ASIC and help with enforcement action associated with phoenix activity.
It is also expected that the more simpler tracking of directors and their corporate history to be provided by the DIN regime will improve the efficiency of the insolvency process by reducing time and costs for liquidators and administrators. DIN’s may also improve data security as directors will be identified by a number rather than more personal information such as names or addresses.
New requirement to apply
The DIN regime will broadly require company directors:
- to apply for a DIN prior to being appointed as a director;
- to apply for a DIN within a prescribed period of being directed to do so;
- to not knowingly apply for multiple DINs; and
- to not misrepresent a DIN to a government body or registered body.
A person must apply for a DIN if they are an eligible officer of:
- a company, a registered Australian body or a registered foreign company under the Corporations Act 2001 (Cth); and/or
- an Aboriginal and Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth).
An eligible officer is a person who is, or will be appointed as:
- a director; or
- an alternate director who is acting in that capacity.
Penalties for non-compliance
A contravention of every obligation under the DIN regime will be both a civil penalty provision and a criminal offence under the Corporations Act and will carry the following maximum penalties:
- a maximum civil penalty of the greater of $1,050,000 or three times the benefit derived or detriment avoided because of the contravention; and
- a maximum criminal penalty of $12,600.
How to apply for a DIN
Company directors may apply for a DIN by logging into ABRS online and by using the myGovID app. The DIN application process will generally require directors to have with them:
- their tax file number;
- their residential address;
- a standard or strong identity strength myGovID; and
- information from two documents to verify their identity (for example, bank account details, an ATO notice of assessment, superannuation account details, a dividend statement, a Centrelink payment summary or a PAYG payment summary).
Time limits to apply
Directors must have applied for a DIN within the timeframes set out below:
- if appointed as a director on or before 31 October 2021 – by 30 November 2022;
- if appointed as a director between 1 November 2021 and 4 April 2022 – within 28 days of being appointed; and
- if appointed as a director after 5 April 2022 – before being appointed.
If you have any questions or concerns as to how the new DIN regime will impact your company or your duties as a director, please do not hesitate to contact us.