Should Australia Adopt a Director Identification Number (DIN) Requirement?
On 13 February 2019, the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 was introduced to the Australian Parliament (Amendment Bill). The Amendment Bill proposed a director identification number (DIN) requirement as part of a suite of Government initiatives which attempt to detect, deter and penalise phoenix activity. While the Amendment Bill lapsed at dissolution on 11 April 2019, given the cost of phoenixing on the Australian economy, it is relevant to question whether the DIN requirement should be reconsidered by Parliament.
What is phoenixing?
The Explanatory Memorandum to the Amendment Bill describes phoenixing as “when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring its assets to another company”. This has obvious implications for the creditors and employees of the indebted company, and is estimated to cost the Australian economy between $2.9 billion and $5.1 billion annually. It is therefore understandable that the Australian Government had sought to implement stronger monitoring mechanisms to reduce the prevalence of such activity.
The current framework
The current directorial framework requires companies to provide ASIC with details of their directors, including the director’s full name, former name (if any), date and place of birth, and residential address. Additionally, the director must provide the company with their written consent to act as director of the company.
However, details lodged with ASIC by companies are not verified by ASIC. As a result, it is difficult for ASIC and other regulators to trace a director’s relationship across different companies, particularly where illegal activity is involved.
Should Australia adopt the DIN system?
The Amendment Bill would have imposed an obligation on all present and future directors in Australia to verify their details with ASIC. Directors would be issued with one unique, permanent and non-transferable DIN which they would need to disclose to ASIC each time they sought registration as a director. According to the Explanatory Memorandum, this would have provided “traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and [would] prevent the use of fictitious identities. This [would] assist regulators and external administrators to investigate a director’s involvement in what may be repeated unlawful activity including illegal phoenix activity.” The broader benefits were said to have included improved data integrity and security, and simplified access to director history.
In addition, the Amendment Bill may have had a deterrent affect against phoenixing activity by prescribing a set of penalties for contravention. For example, a failure to apply for a DIN could have incurred a criminal penalty of up to 60 penalty units (currently $12,600), and a civil penalty of up to $200,000.
Lapsed at dissolution
The Amendment Bill lapsed at dissolution on 11 April 2019, and as at the date of publication, it is not clear whether it will be reintroduced into Parliament for further consideration.
