Should Aus­tralia adopt a Direc­tor Iden­ti­fi­ca­tion Num­ber (DIN) require­ment?

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.