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All current and future directors of Australian and registered foreign companies will soon need to verify their identity and be issued with a Director Identification Number (DIN) under new anti-phoenixing laws recently passed by the federal Parliament.
The DIN scheme is part of a comprehensive package of legislative reforms designed to consolidate and simplify existing business registration frameworks and to deter and penalise persons who engage in illegal phoenixing – estimated to cost the Australian economy up to $5 billion annually.
Phoenixing is when directors of an indebted company at risk of insolvency transfer its assets to a new entity and commence the same business activities through that new entity to avoid paying the indebted company’s liabilities. Phoenixing substantially impacts:
Under the new scheme a single unique numerical identifier will be allocated to each Australian director. The DIN will remain with that director across all current and future directorships.
The scheme will be implemented under amendments to the Corporations Act 2001 (Cth) and is expected to commence in the first half of 2021.
Once the scheme commences, all ‘eligible officers’ (i.e. newly-appointed and existing directors, as well as alternative directors and any other officers prescribed by the regulations) of registered Australian bodies or registered foreign companies will be required to obtain a DIN within specified timeframes.
Directors of unincorporated entities or those acting as shadow or de facto directors will not be required to obtain a DIN at this stage, although the Act allows the Minister to introduce these requirements in the future.
While questions remain as to how the identification process will work (in particular for foreign directors):
There are significant civil and criminal penalties for directors who fail to apply for a DIN within the required timeframe and for conduct that would otherwise undermine the new DIN requirement (for example, for directors who deliberately provide false identity information to ASIC or apply for multiple DINs). The Registrar may also issue infringement notices in relation to such conduct.
Individuals who have director appointments over a number of companies will need to take steps to obtain their DIN within the required timeframe once the scheme commences.
Any company which seeks to appoint new directors will need to ensure that those directors who do not already have a DIN obtain one prior to their appointment becoming effective.
Any director wishing to resign their director appointment will need to ensure relevant registrations are made within the required timeframe of their resignation.
For further information and assistance on the issues raised in this article please speak to the authors, Tina van Epen – Partner and Shanna Beeton – Lawyer, or your usual Moray & Agnew contact.
Tina van Epen