Lifetime ‘Director Identification Numbers’ introduced under new ‘anti-phoenixing’ legislation
The Federal Parliament has recently passed the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (the “Bill”), which establishes a lifetime registration system for company directors, where each director is assigned a unique ‘Director Identification Number’ or ‘DIN’.
Any person who becomes a director of a registered company will have to confirm their identity prior to being assigned a DIN. The director will then keep the same DIN for life even after they cease to be a director of one company and are subsequently appointed as a director of a different company or multiple companies. The DIN regime will also apply to directors of charities that are also registered companies, such as a director of a company limited by guarantee.
The changes are expected to be in place by the first half of 2021.
The DIN regime will help prevent the use of fictitious identities and assist regulators with tracing the directors of failed companies. This will make it be easier to investigate and prevent repeated unlawful behaviour – such as so called ‘phoenixing’ – as well as making directors more accountable for past activities.
‘Phoenixing’ is where directors shut down a company and transfer assets to a new entity to avoid paying debts and liabilities. This affects many stakeholders as the defunct entity generally avoids paying taxes as well as their creditors, contractors and employees. It has been estimated that the annual cost to the Australian economy as a result of phoenix activity is between $2.85 billion and $5.13 billion dollars.
Under the new arrangements Directors must apply for a DIN prior to their appointment as a director, although in some instances an exemption or extension of time to apply may be granted. For current directors, there will be a transitional period during which they will be required to apply for a DIN, with the period to be specified in the future by a further legislative instrument.
There are criminal and civil penalties for director who fails to apply for a DIN, penalties for providing false identity information as well as for knowingly applying for a second DIN when one has already been assigned.
While new measures – especially to combat illegal phoenix activities are welcome – this new regime does raise privacy concerns for all persons who consent to be appointed as a director. It is proposed that, as part of the proposed Modernising Business Registers program, the register of DINs will be one of a newly formed group of mostly existing registers which will be administered by the Australian Business Register.
As such with the creation of an additional register containing director personal information, it is likely there will be concerns about potential data breaches, the security of personal and identifying information uploaded by directors to enable them to apply for a DIN and the actual DIN which is connected to their identity.
Overall the new Modernising Business Registers program is expected to increase efficiencies and decrease the regulatory burden on charities, which may go some way to recouping the DIN compliance costs.