On 12 June 2020, the Federal Government passed legislation which will have the effect of introducing a register of directors of Australian companies. Each director will be required to register and be issued with a Director Identification Number (DIN).
Why a registration system for directors?
This change is part of a number of laws passed to continue the Federal Government's scrutiny of corporate governance in the wake of the Banking Royal Commission. The relevant Bill, in this case, is the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019.
The Directors Identification Number regime is aimed at tackling phoenix activity and aid in the prosecution of offences by directors, but in essence, it boils down to the verification of the identity of company directors and the streamlining of the system, which will have other flow-on benefits including to combat director identity fraud, avoid discrepancies and errors in Government registers, and improve efficiency including in insolvencies.
The Directors Identification Number regime is, in fact, being introduced as part of the Government's Modernising Business Registers (MBR) program aimed at merging various business registers into one new register overseen by a Commonwealth body to be appointed.
Unfortunately, it will add another layer of red tape to the system, and there will no doubt be pushback by those concerned about the privacy of data in the streamlining of Government services, which has been an ongoing topic of discussion.
Attempts to introduce legislation of this kind failed before, but it seems the Government has now been able to see these laws across the line. Whether this was with the aid of, or in spite of, the COVID-19 pandemic is for political commentators to decide.
When to register for a Director Identification Number?
The DIN regime will come into operation on a date to be named, which is expected to be in the first half of 2021, but which could be delayed depending on the Government's priorities in light of the COVID-19 emergency.
From commencement there will be a transition period of 12 months during which:
- existing directors will need to register within the period prescribed on the announcement; and
- new directors will need to register within 28 days of their appointment.
Following the transition period, new directors will be required to register before they are appointed.
The DIN regime will also extend to directors of foreign companies registered in Australia.
Director Identification Number (DIN) impact on business
Whilst the introduction of the DIN system will be welcomed by ASIC staff and accountants everywhere combatting minor discrepancies in director names and details on various documents and registers, there are some important things for directors to be aware of.
Directors who fail to register within the requisite period may be removed from the ASIC register. They may also be subject to penalty.
Directors applying for multiple DINs or misrepresenting their DIN could be liable for up to 12 months imprisonment. Any other person involved in such an offence can be liable for a civil penalty fine as an accessory.
Companies will need to amend their procedures to ensure identity verification and DIN issue for directors before they are appointed.
The verification of identity requirements are yet to be seen but are likely to raise the usual procedural concerns including for persons who do not have the more common forms of identification, foreign persons and those overseas at the time of introduction of the regime.
Watch this space for more information when the regime commences and critical dates are announced.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.