With the introduction of the Director Identification Number (DIN) regime, directors of companies will be required to register for a unique identification number that they will keep for life, similar to a tax file number. The system will create one source of information across Government agencies for individuals and entities and will be managed by the Australian Taxation Office (ATO).
Under the DIN regime, all directors will need to have their identity confirmed when they consent to being a director. Once the director has obtained their DIN the director will keep this number permanently, even after the director ceases being a director, so the number will never be issued to another person. As a result, this creates an ID system that can trace one director’s relationships across multiple companies, resulting in better tracking of directors of companies that have previously become insolvent and also prevents the use of the directors using fictitious identities.
WHY THE NEED FOR A DIRECTOR IDENTIFICATION NUMBER?
The main reason for the introduction of the DIN regime is to reduce illegal phoenixing activities. Phoenixing is where directors transfer the assets of an existing company to a new company without paying full value, leaving the debts within the old company. Once the assets have been transferred to the new company, the old company is liquidated leaving creditors out of pocket and the directors then continue to operate the business in the new entity. This enables them to forget the previous problems with the old company and start again with the benefit of the strong assets of their old company as a foundation.
WHO WILL NEED A DIN?
The DIN is very broad and introduces the concept of an ‘eligible officer’. An eligible officer is a director who:
- Is appointed to the position of director, or is appointed to the position of an alternate director (including a shadow director) and is acting in the capacity of a director, i.e., is seen to be making decisions on behalf of the company (regardless of the name that is given to that position); or
- Any other officer of the registered entity who is an officer of a kind prescribed by the regulations.
An eligible officer is a director of a:
- Registered foreign company
- Registered Australian body under the Corporations Act such as an association or a charity, or
- An Aboriginal and Torres Strait Islander corporation (which are registered under the CATSI Act).
When the system opens, directors will need to apply for a DIN through the Australian Business Register system through their myGov account. Existing directors will have until 30 November 2022 to acquire a DIN. For the first year of the program, new directors will have 28 days to apply for a DIN from the time of their appointment. From the first year onwards, you will need to have a DIN prior to being appointed as a director.
WHAT ARE A DIRECTOR’S RESPONSIBILITIES?
At a financial level, directors are responsible for ensuring that the company does not trade while insolvent. The director penalty regime has been tightened up in recent years to ensure that directors are personally liable for PAYG withholding, net GST payable and superannuation guarantee charge liabilities if the company fails to meet its financial obligations by the due date. Failing to perform your duties as a director is a criminal offence with fines of up to $200,000 and up to five years in prison in serious cases.
WHAT ARE THE PENALTIES FROM NOT COMPLYING WITH THE NEW DIN REGIME?
The introduction of a structured director verification system comes with greater controls by the regulators (such as ASIC) to enforce the law with civil penalties of up to $200,000 in situations which include:
- Failure to register within the relevant timeframes
- Directors applying for multiple DINs, and
- Misrepresenting a DIN
The failure to register when required is a strict liability and ASIC does not have to prove fault, they will simply issue an infringement notice to the director. If you have any questions about the Director Identification Number (DIN) regime, please don’t hesitate to contact this office.