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.