Alongside the new rules relating to director resignations, the new DIN scheme constitutes a further attempt by the Federal Government to prevent illegal phoenixing activity by making it easier to track directors from company to company.
1. What is a DIN and why are they being introduced?
The new legislation – the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth) (the Act) – will require directors of Australian companies to register and receive a unique director identification number.
All directors of Australian companies or body corporates will be required to have a DIN prior to becoming a director or, if directed to register by the Registrar, within the timeframe specified (usually 28 days).
The purported purpose of this new DIN scheme is to increase director transparency and to enable the tracking of directors between companies, with the intention of curtailing illegal activities by bad-faith directors.
As such, the DIN will be unique to each specific director, and will be registered on a national register. For this reason, the Act specifies that directors must not apply for another DIN if they already have one, and they must not intentionally represent as the DIN of another person to a Government or registered body.
2. The Testing Period
While these new laws mandating directors receive a DIN are now in force, the Registrar and DIN system is yet to be fully tested.
Because of this, directors are not yet required to apply for a DIN and will not be penalised for not having a DIN until testing of the system is expected to be completed (currently set for 30 October 2021). After this date, all new directors will need to apply for a DIN within 28 days of becoming a director.
3. What about existing directors?
As for existing directors, they will have an extra transitional period of one year (until 30 November 2022) to receive a DIN, with existing directors of indigenous corporations not requiring a DIN until 30 November 2023.
4. What happens if you fail to obtain a DIN?
It is critical that all directors comply with the DIN requirements when they take effect. To ensure directors abide by the scheme, hefty civil and criminal penalties may apply where:
- a director fails to apply for a DIN;
- intentionally applies for a new DIN despite holding an existing one;
- or provides falsified identification documents to a government body.
If you are a director, or may become a director in the next twelve months, these are the key take-aways:
- You will need to apply for a Director Identification Number either of your own volition or on request by the Registrar;
- If directed to apply for a DIN by the Registrar, you will have 28 days to do so (unless specified otherwise);
- A DIN is not yet required by existing directors but will be mandatory from 30 November 2022 (30 November 2023 for directors of indigenous corporations);
- Criminal and civil penalties may apply for failing to register for a DIN – start preparing now! In a constantly evolving legal landscape, it is crucial that directors are aware of their fiduciary obligations and take advice from appropriately qualified advisors.
If you, or someone you know are a director of a company or are looking to become a director of a company and are unsure about how these new laws apply to your circumstances, please contact us at email@example.com