LEGAL UPDATE

Targeting of Phoenix Activity – Director Identification Numbers Come into Force

Authors: Sarah Younis & Maria Markoulli

Under the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth) (MBR Act), 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) and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth).  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.

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 (Aboriginal and Torres Strait Islander) 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 (Aboriginal and Torres Strait Islander) Act who 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 be 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).  Directors should be aware of other DIN associated offences under the Corporations Act 2001 (Cth).  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.

Directors may apply for a DIN online using their myGovID, by phone, or in writing to the Australian Business Registry Service.

What Should Directors Do?
In order to comply with the new rules, directors are advised to:

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.

For more information or if you require advice and assistance regarding the above, please contact our Harmers team on +61 2 9267 4322.

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