Director Identification Numbers (DINs) are coming

By Marcus Connor and Roger Saxton

Connor & Co. Lawyers

Sydney

 

10 minute read

 

What do you need to know?

 

In mid-2021 all persons who are directors (including alternate directors) of:

 

  • an Australian company registered under the Corporations Act 2001 (Cth) (the Act);

 

  • a foreign company registered under the Act for business purposes in Australia; or

 

  • other types of bodies registered under the Act such as companies limited by guarantee or no liability companies,

 

will be required to obtain a Director Identification Number (DIN).

 

The requirement to obtain a DIN will also apply to those persons who:

 

  • are not presently directors or alternate directors of the same type of registered bodies as mentioned above; and

 

  • intend to become such a director or alternate director within 12 months.

 

What are DINs?

 

A DIN is a unique numeric identifier which a director or alternate director of an Australian company, or other registered body as outlined above, is required to hold for that person’s life, and not merely for the term that person holds a relevant office.

 

The DIN will be issued to an applicant by the Australian Taxation Office (ATO) (serving in its capacity as the keeper or Registrar of the newly created Commonwealth Business Registrar) after that applicant’s identity has been verified.

 

Why have DINs been introduced?

 

The new DIN system has been introduced as part of the Commonwealth Government’s “Modernising Business Registers” program and by way of amendments to the Act made by the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth).

 

Under that program, 31 separate registers that have been administrated up until now either by the Australian Securities and Investments Commission, or under the Australian Business Register administrated by the ATO, will be unified under one digital registry system.  That digital registry system will be managed by the ATO (serving in its capacity as Registrar of the newly created Commonwealth Business Register).

 

That program is intended to both reduce red tape, needlessly redundant systems of registration, and to strengthen the Commonwealth Government’s administration and enforcement capabilities.

 

The Commonwealth Government has publicly declared that DINs will help deter and combat illegal “phoenixing” activity and other types of fraudulent activity.  

 

Phoenixing occurs when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring its assets to another company. 

 

The achievement of those legitimate and laudable government aims will be facilitated by requiring that all first-time directors or alternate directors must have their identity verified by the ATO before they can be appointed to such offices.  

 

The ATO is permitted by the legislation to use an applicant’s Australian tax file number (if the applicant has such tax file number) to verify that applicants identify when processing a DIN application, thereby making it is unlikely the ATO will issue a DIN to fictitious persons.  For applicants who do not have a Australian tax file number, other means of confirming an applicant’s identity will be utilised.

 

Utilising the DIN system, the ATO (serving in its capacity as the Registrar) will also collect and preserve information about a person’s subsequent board appointments to other Australian companies or such other bodies that are subject to the legislation.

 

The ATOs data collection activities will enable the Commonwealth Government, and others such as liquidators, to effectively track a person’s involvement (whether as a director or alternate director) across the spectrum of Australian companies and similarly registered bodies that are subject to the legislation.

 

With the new system in place it will be unlikely that a person, acting rationally, will agree to act as a knowing participant in fraudulent activities carried out by an Australian registered company or by a foreign company registered to conduct business in Australia or any other body subject to the applicable legislation.

 

Who is required to obtain a DIN?

 

At this time, only existing and first-time directors or alternate directors of those bodies that are subject to the Corporations Act amendments will be required to obtain a DIN once the law takes effect.

 

However, the legislation permits the Government to extend the registration requirement to include other officers of the Company, including company secretaries, administrators, receivers and liquidators.

 

To be clear, at this time de-facto or shadow directors are not required to apply for a DIN.  However, the legislation permits the Registrar to issue directives ordering those persons to apply for a DIN and a penalty applies if they fail to do so.

 

A “de facto” director is a person who is not validly appointed as a director, but who acts in the position of a director.  Whereas, a “shadow director” is a person who is not validly appointed as a director, but the directors in fact of the body are accustomed to acting in accordance with that person’s instructions or wishes.  As such, a shadow director may be described as the real power behind the corporate throne in contrast to those who, on the record, hold the official titles of office.

 

To also be clear, directors of incorporated associations that are registered with the New South Wales Department of Fair Trading in accordance with the Associations Incorporation Act, 2009 (NSW) are not required to apply for a DIN.  That is because the DIN registration requirement only applies to bodies registered under the Corporations Act.

 

When will DINs come into effect?

 

While the new law commenced on 23 June 2020, the Commonwealth Government has yet to implement the DIN registration system.  It is expected to do so by mid-2021.

 

It is currently proposed that all existing directors and alternate directors of Australian companies, and of other bodies that are subject to the legislation, must obtain a DIN on or prior to 30 November 2022.

 

What is the reason for the delay?

 

The Commonwealth Treasury has sought public submissions regarding the data standards and disclosure framework which will apply under the new regime, a process that has delayed implementation to date.

 

The data standards and disclosure framework are intended to describe:

 

  • when, what and how information will be collected;
  • the manner and form in which that information will be given to the Registrar;
  • how the information will be authenticated, verified or validated;
  • how the information will be stored and corrected; and
  • how the information held by the Registrar will be integrated or linked.

 

When do I need to get a DIN?

 

Once the new registration system commences, the following transitional periods will apply:

 

  • It is currently proposed that all existing directors (including alternate directors) will have until 30 November 2022 to obtain a DIN;

 

  • A person who wishes to be appointed as a director or an alternate director during the first 12 months of the operation of the new law must apply for a DIN within 28 days of their appointment to the relevant office.

 

What if I don’t bother to get a DIN?

 

Civil and criminal penalties will apply for failing or refusing to get a DIN in accordance with the amended Corporations Act.

 

The maximum criminal penalty is presently set at 60 penalty units (being AUD$12,600).  The offence is a strict liability offence.

 

The maximum civil penalty is the greater of 5,000 penalty units or three times the benefit derived or detriment avoided because of the contravention.

 

Other penalties will apply in respect of persons applying for additional DINs or for misrepresenting a DIN.

 

Persons who presently hold the office of director or alternate director of an Australian registered company or other body that is subject to the legislation, or who are contemplating accepting appointment as such a director or alternate director, are advised to seek the advice of a competent Australian solicitor as to the application of the new system in their unique or particular circumstances.  That solicitor should be able to guide them through the relevant processes and to address any concerns the client may have.

 

Should you wish to receive advice in respect of your unique and particular circumstances, please contact Marcus Connor at marcus.connor@connorco.com.au.

 

About Connor & Co Lawyers

 

We are a Law firm located at Level 5, 50 Margaret Street Sydney NSW 2000 specialising in Business law, Dispute Resolution, Litigation and Land & Environment matters. 

Email: contact@connorco.com.cau Website: www.connorco.com.au. Phone: 0292996696

 

Important Note:

This article is not intended to be a comprehensive summary of the law.  Nor is intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances.  Please do not hesitate to contact Connor & Co Lawyers on 92996696 if you would like to know more or wish to obtain legal advice that is relevant to your circumstances.