On 22 June 2020, the Australian Federal Government passed legislation setting out a legal framework for the introduction of a Director Identification Number (DIN) regime for directors.
Currently, the application to become a director requires only a name, an address and a date of birth, with no requirement for a person to prove their identity.
The new law will amend the Corporations Act 2001 (Cth), to require all directors (including alternate directors) to hold a unique DIN issued and administered by Australian Securities and Investments Commission (ASIC), and will permanently remain with that director across all current and future directorships once launched.
The new identity system is part of a suite of new laws passed which are aimed at combating illegal phoenixing activity (in which companies deliberately avoid paying liabilities by shutting down an indebted company and transferring assets to another company) by preventing directors from registering under different or fictitious names to escape liability. This new identity system is expected to clearly identify all board positions held by a director to identify involvement in failed companies, associated interests or any perceived or actual conflicts of interest.
What does this mean for directors?
- Once the register is open, individuals will be required to apply for a DIN before being appointed as an “eligible officer”. It is clear that an “eligible officer” means directors and alternate directors however it is uncertain at this point whether secretaries and public officers will also be required to be registered.
- There will be a transition period in which existing directors must register within 12 months of commencement of the regime and new directors must register within 28 days of their appointment. Following the end of the transition period, new directors will need to register before they are appointed.
- Significant criminal and civil penalties can apply for breaching the rules, including for not applying for a DIN or having multiple DINs. This includes being liable to up to 12 months imprisonment and/or fines of up to $200,000.
- Eligible officers will be required to submit prescribed personal information (to be determined by the registrar) and undergo a 100 point identity verification with ASIC. Whilst the registrar has the power to request an applicant’s tax file number, they have no power to compel its provision. Once verified, ASIC will issue a DIN to the director. There may be some complexities and delays in getting appointed as a director for individuals who are not Australian residents or do not hold the usual forms of ID verification.
- The new regime may also raise potential privacy and cybersecurity concerns for all persons who consent to be appointed as a director.
- The new requirement could have adverse implications for the appointment of a new director on an urgent basis. Companies will need to amend their procedures to ensure identity verification and DIN is issued for directors before they are appointed.
When will this be introduced?
The new identity system will be included as part of the Australian federal government’s Modernising Business Registers program aimed at consolidating the Australian Business Register and 31 existing registers administered by ASIC into one business register to be maintained by the Australian Business Register at the Australian Taxation Office.
The new identity system is expected to begin in the first half of 2021, once the overall application system has been developed and deployed. The unprecedented coronavirus-related challenges at the moment may further delay the roll-out of the regime into practice.
We will provide further information once further details is at hand. In the meantime, should you have any questions regarding this alert or any other corporate governance concerns, please do not hesitate to contact a member of our Corporate and Commercial team.
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