ASIC has long held illegal phoenixing in its sights and has proposed a number of reforms to deter and disrupt illegal phoenix activity from occurring and remove the unfair competitive advantage that it creates. These reforms include the introduction of the requirement for all company directors to hold a unique identification number, following both houses of Federal Parliament recently passing the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Registries Bill).
Partner, Nicole Radice provides an overview below of director identification numbers (DIN).
Background
In late 2017, the Federal Government announced that it would crackdown on illegal phoenixing activities, which were reportedly estimated to cost the economy up to $3.2 billion per year. You can read our previous article on this announcement here. The proposed introduction of a DIN requirement is part of the reforms.
To date, although the law has required that directors (including the directors of not-for-profit organisations and charities registered with the Australian Investments and Securities Commission (ASIC)) lodge their details with ASIC, it is not a requirement that their identity is verified by the regulator.
Purpose of Bill
Schedule 2 of the Registries Bill amends the Corporations Act 2001 (Corporations Act) and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI) to introduce a DIN requirement. The purpose behind the new requirement is to deter “phoenixing” which occurs in circumstances where directors deliberately avoid paying liabilities by shutting down an indebted company and transferring its assets to another company. The new DIN regime intends to offer the additional benefits of more effectively tracking directors and their corporate history. The Government anticipates that tracking a DIN will allow regulators to easily map the relationship between individuals and entities, as well as the relationships between different entities. The person will retain their DIN, even when they cease to be a director.
Obligations
When the law comes into effect and a registrar is appointed, four new obligations will arise:
- a person appointed as director, alternate director or any other officer of a body corporate registered under the Corporations Act or CATSI must apply to the registrar for a DIN prior to being appointed a director;
- a director must apply for a DIN within the prescribed period of being directed to do so by the registrar;
- a person must not apply for multiple DIN’s; and
- a person must not misrepresent a DIN to a government or registered body.
The prescribed period for applying for a DIN will be determined by the registrar. If the number of days is not specified in the direction, the prescribed period is 28 days from the date the direction is given to the director. After receiving the application, the registrar must provide the director with a DIN if the registrar is satisfied that the director’s identity has been established.
The new law will include transitional arrangements for the first 12 months. The date the new regime will commence is yet to be fixed, but will occur within two years.
Consequences of contravention
Both civil and criminal penalties apply to contraventions of the requirement for a DIN and the registrar also has the power to administer infringement notices in relation to some contraventions. As such, it will be important for all corporates and directors to comply with their DIN obligations moving forward.
Not-for-profits and charities
The DIN requirements will apply to all ‘registered bodies’ (including not-for profits and charities). This means that directors of not-for profit registered bodies under the Corporations Act or CATSI (including charities registered with the Australian Charities and Not-for-profits Commission (ACNC)) will be required to have a DIN.
If you require any further information in relation to director obligations in light of this new legislation, please contact our Corporate Advisory and Governance team.