On 22 June 2020, the Australian Government introduced new legislation to help combat illegal phoenixing activities, amending the Corporations Act 2010 and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 by introducing Director Identification Numbers.
What is phoenixing?
Phoenexing 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 between $2.9 billion to $5.1 billion annually.
What is a Director Identification Number?
The current law requires details of directors to be lodged with ASIC. The new legislation goes further and mandates that all company directors (and acting alternate directors) registered under the Corporations Act must be verified and given a Director Identification Number (‘DIN’). A DIN must be issued and stored by all directors, regardless of whether they have acted for a short period of time or have ceased acting altogether, and must be done within 28 days of appointment.
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 are 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 identity fraud, which will assist regulators in investigating whether a director has engaged in unlawful activity.
Contravening the DIN requirements could result in criminal and/or civil penalties.
What you need to do
It is expected that the introduction of the DIN regime will commence in the first half of 2021, however we anticipate that due to the Australian Government’s priorities in light of COVID-19, it may not take effect until 2022.
When the DIN is implemented, all existing company directors will have 12 months to register, with new directors having 28 days to do so before penalties may be issued.
We will be sure to provide updates on our website when a date has been set.
Need further information?
It is imperative for company directors to ensure their records are kept up to date. If you would like further information regarding these changes, please contact our Accredited Specialist 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.
For further information contact
Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.