Implementation of Director Identification Numbers
In June 2020, the Federal government passed legislation amending the Corporations Act 2009, which will require directors to confirm their identity through a Director Identification Number (DIN). The system is currently due to commence in July 2022
A DIN will be a permanent and unique identification number which will be required for existing directors or people who want to become a director of a company or registered body. The unique identifier will continue, even if a person ceases to be a director. DINs will apply to all registered bodies, including charities and not for profit organisations.
The use of DINs will facilitate traceability of directors and their relationships with and appointment to various companies over time, improving the transparency of corporate governance. This will allow consumers to better track directors of failed companies and give greater confidence in understanding who they are dealing with. It will also prevent the use of false identities and assist regulators to verify the identity of directors and trace their relationships between entities.
The implementation of DINs is also designed to prevent illegal phoenix activities. Phoenixing is fraudulent conduct which occurs when directors create a new company to continue the business of a company that has been deliberately placed into liquidation to avoid paying debts.
Once implemented, existing directors will have 28 days to apply for a DIN. For the first 12 months after implementation, new directors will have 28 days to apply for a DIN. Following the end of the transitional period, a person must apply for a DIN prior to being appointed as a director. Failure to apply within the timeframe can lead to civil and criminal penalties, including fines of up to $1.1M.
What this means for companies
- Once the system is in place, existing directors must apply for a DIN within 28 days. For the first 12 months of operation, new directors will have 28 days from appointment to apply for a DIN.
- Boards will need to implement proper planning to avoid new board appointments being delayed once the system is established.
- Processes will need to be in place for the urgent appointment of a new director.