Direc­tor Iden­ti­fi­ca­tion Number

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 pro­pos­es a direc­tor iden­ti­fi­ca­tion num­ber (DIN) require­ment as part of a suite of ini­tia­tives the Com­mon­wealth Gov­ern­ment is imple­ment­ing in an attempt to detect, deter and penalise phoenix activity. 

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. It is also esti­mat­ed to cost the Aus­tralian econ­o­my of between $2.9 bil­lion and $5.1 bil­lion annu­al­ly. It is there­fore under­stand­able that the Aus­tralian Gov­ern­ment is seek­ing 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. 

The DIN requirement

If passed into leg­is­la­tion, the Amend­ment Bill will impose an oblig­a­tion on all present and future direc­tors in Aus­tralia to ver­i­fy their details with ASIC. Direc­tors will be issued with one unique, per­ma­nent and non-trans­fer­able DIN which they will need to dis­close to ASIC each time they seek reg­is­tra­tion as a direc­tor of a company. 

The Amend­ment Bill also pre­scribes penal­ties for con­tra­ven­tion of the DIN require­ment. For a fail­ure to apply for a DIN, it impos­es a strict lia­bil­i­ty crim­i­nal offence pun­ish­able by up to 60 penal­ty units (cur­rent­ly $12,600), and a civ­il penal­ty of up to $200,000.

Accord­ing to the Explana­to­ry Mem­o­ran­dum, ​“the DIN will pro­vide trace­abil­i­ty of a director’s rela­tion­ships across com­pa­nies, enabling bet­ter track­ing of direc­tors of failed com­pa­nies and will pre­vent the use of fic­ti­tious iden­ti­ties. This will assist reg­u­la­tors and exter­nal admin­is­tra­tors to inves­ti­gate a director’s involve­ment in what may be repeat­ed unlaw­ful activ­i­ty includ­ing ille­gal phoenix activity.”

In addi­tion, the DIN require­ment is also said to cre­ate a range of broad­er ben­e­fits, includ­ing improved data integri­ty and secu­ri­ty, and pro­vid­ing sim­ple access to direc­tor history.

The Amend­ment Bill is still being con­sid­ered by the Aus­tralia Par­lia­ment as at the date of pub­li­ca­tion and there is no clear indi­ca­tion on the com­mence­ment date of the DIN requirement.