Director identification numbers coming for all company directors
Director identification number (DIN) regime
To combat phoenixing and other black economy activities, a new regime of director identification numbers (DINs) will come into effect in the near future. The new regime requires all directors to confirm their identity and apply for a DIN which will be a unique identifier for each person who is a director or elects to become a director. The identifier is permanently linked to the individual even if they cease to be a director. It is intended that the DIN will enable better tracking of directors of failed companies and prevent the use of fictitious entities.
Policy objective of DIN
The policy objective of the DIN is to reduce instances of phoenixing, that is, where the controllers of a company deliberately avoid paying liabilities by shutting down indebted companies and transferring assets to another company.
Currently, while the law requires that directors’ details be lodged with ASIC, it is not a requirement that the regulator verify the identity of directors, which could lead to fraudulent use of stolen identities as well as other illegal activities.
It is estimated that black economy and phoenixing activity in particular costs the economy between $2.9bn and $5.1bn annually. This includes creditors not receiving payment for goods and services, employees not receiving wages or superannuation entitlements and the general loss of tax revenue for the government.
In addition to combatting illegal phoenixing, the new DIN regime will also offer other benefits such as simpler more effective tracking of directors and their corporate history to reduce time and cost for administrators and liquidators, improving overall efficiency of the insolvency process, improve data integrity and security.
What is the DIN?
The new DIN will require all directors to confirm their identity. The DIN will be a unique identifier for each person who is a director or elects to become a director. The DIN will be permanently linked to the individual even if they cease to be a director, in other words, the DIN is not intended to be re-issued to another person and each person will only be issued with one DIN.
It is intended that the DIN will provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and preventing the use of fictitious entities. This will allow regulators with ASIC and external administrators to investigate a director’s involvement in what may be repeated unlawful activity including illegal phoenixing.
Obtaining a DIN
Under the new DIN regime, any individual wishing to become a director must apply for a DIN with the appropriate registrar before they are appointed as a director. However, under certain circumstances, such as a transitional time period, there will be additional time allowed for directors or potential directors to apply for a DIN.
For example, during the first 12 months of the operation of the DIN regime, an individual that is appointed as a director has an additional 28 days to apply for a DIN.
If a DIN is not applied for within the applicable timeframe, civil and criminal penalties may be imposed.
In addition, any conduct that would be considered to undermine the DIN requirement will also be subject to civil and criminal penalties (e.g. deliberately providing false identity information, intentionally providing a false DIN, or intentionally applying for multiple DINs).
Timing
Current directors don’t fret, as there appears to be plenty of time to get ready for the new DIN scheme.
Although the legislation implementing the DIN regime has been passed, it will not commence for almost 2 years, even though an earlier start date may be proclaimed. This is to allow for administrative arrangements, IT and other systems and processes to be developed and implemented to give effect to the DIN scheme. We will monitor implementation of the scheme and provide further updates as they come to hand. Watch this space.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.