Director Identification Numbers - What you need to know

Introduction

On 22 June 2020, the Australian Government introduced new legislation to help combat illegal phoenixing activities, amending the Corporations Act 2001 and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 by introducing Director Identification Numbers.

What is phoenixing?

Phoenixing occurs when a company goes into voluntary liquidation to:  

• avoid paying taxes,
• avoid paying creditors and employee entitlements,
• transfer its assets to a new company with often a similar business structure and ownership.
 

The ‘new’ company ‘rises from the ashes’ and goes on trading as usual. It is estimated that these types of activities cost the Australian economy billions of dollars each year.

 What is a Director Identification Number?

All company directors (and acting alternate directors) under the Corporations Act must be verified and given a Director Identification Number (‘DIN’).  This includes not for profit companies if they are incorporated under the Corporations Act (e.g. a company limited by guarantee).  A DIN must be obtained and stored by all directors. For first-time directors, it must be obtained before they are appointed.

The objective of the legislation is to promote good corporate conduct through the following four requirements:  

• directors are required to apply for a DIN before being appointed as a director,
• directors ae required to apply for a DIN within a prescribed period of being a director,
• a person is prohibited from knowingly applying for multiple DINs, and
• it is illegal to misrepresent a DIN to a government or registered body.

The purposes of the DIN are to:

• trace a director's relationship across companies,
• identify failed companies, and
• prevent identify fraud, which will assist regulators in investigating whether a director has engaged in unlawful activity.

The Director ID information is held and managed by the Australian Business Registry Service (ABRS).

What you need to do

The DIN regime began in 2022.  It is expected that all company directors (including those who were appointed prior the new requirements) will now have obtained a DIN.  If you are going to be appointed as a company director for the first time, you must obtain your DIN before you are appointed.  

There are three ways to apply for your Director ID:

1. MyGovID (recommended by the ABRS)

1. Set up a myGovID on your smartphone.
2. Gather relevant documents.
3. Submit an application.

‍2. By Phone

1. Quote an individual Australian tax file number (TFN). Providing a TFN is optional but it speeds up the process.
2.  Provide your residential address as held by the Australian Taxation Office (ATO).
3. Answer two questions based on details already documented by the ATO.
4. Two Australian identity documents – one primary and one secondary.

‍3. With a paper form

1. Download the form at ABRS website.
2. Provide certified true copies of your identity documents.

Once you have applied for your DIN, you will receive your 15 digit Director Identification Number. More information is available on the ABRS website.

What if you don’t get a DIN?

Contravening the DIN requirements could result in criminal and/or civil penalties.

At the time of writing this article, ASIC has prosecuted and convicted at least 11 directors for failing to hold a DIN, resulting in fines totalling more than $40,000.  The fines to date have been in the mid-range.  

It is clear that ASIC is taking a stricter approach now that the regime has been in effect for long enough for directors to be complying.  We expect that penalties will trend higher and toward the maximum possible penalty of 60 penalty units (currently $19,800).

Need further information?

It is essential for company directors to ensure their records are kept up to date.  Companies should ensure that all current directors hold a valid DIN and retain evidence of compliance.  We also recommend that DIN verification should be incorporated into onboarding of new directors.

If you would like further information or have any queries about your compliance with the DIN requirements, please contact our Commercial Law team on 1300 205 506 and we will be happy to assist.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.‍