DINs for life – The introduction of Director Identification Numbers

The federal government isbringing in a new regime whereby every company director will be assigned alifetime unique “Director Identification Number” or “DIN”.   

Why?

One of the driving forces behindthis new regime is to combat phoenixing. Phoenixing is when directorsdeliberately avoid paying liabilities by shutting down the company andtransferring any assets to a new company. The aim of the new regime (of which the issuing of DINs is part) is tohelp prevent fictitious directors, make directors more accountable for theiractivities and to enable tracing and potential prosecution of directors offailed companies.

Currently ASIC is not required toverify the identity of directors and with 35 different business registries,unscrupulous directors can more easily hide by having multiple records (eachdiffering slightly) across these registries.  The issuing of DINs forms part of a larger suite of reforms toamalgamate these different registries into one. 

I am a director of an NFP thatis a company limited by guarantee – do I need a DIN?

Yes. The DIN regime will apply to all company directors. Once allocated, the DIN is for life and will remain with you as director for all current and future directorships. You cannot have more than one DIN and there are penalties (see further below) if you do so.

I am a director of anunincorporated NFP – do I need a DIN?

No.  The new laws only apply to companiesregistered under the Corporations Law and administered by ASIC.

When do I have to apply for aDIN?   Watch this space.

Not yet but preparation is key.

The new federal laws* were passedon 12 June 2020 and it is anticipated will come into force sometime in thefirst half of 2021. Although given the challenges facing our federal governmentin dealing with the impacts of COVID-19 and the practical reality behindamalgamating 35 business registers administered by ASIC to one new modernisedplatform, this remains to be seen.

However, once the laws are in force:

1. During the 1^st twelve months, directors will have 28 days to apply for a DIN after their appointment. Thereafter, all directors must apply (if they don’t already have one) before being appointed as a director.
2. Existing directors will have a grace period within which to apply for a DIN. At this stage, we do not know how long that period will be.  

How can our NFP prepare forthe new regime?

Full details are yet to bereleased on what information will be required to apply for a DIN. 

The new regime does present somepractical challenges, particularly if proper planning is not in place.  

For example, some NFP company constitutions allow for alternate directors to be appointed as “substitute directors” for a specified period of time and can be used as a temporary measure in the event a key director is unable to perform their duties.  How then can the NFP avoid falling foul of the new laws if the person you wish to appoint does not have a DIN? Under the new laws, prospective directors may apply for a DIN up to 12 months prior to appointment (after 12 months if they have not been so appointed, this will lapse and will need to apply again).  In these circumstances, the Board should give careful consideration and forward planning of key people within the NFP that are most likely to be appointed if required on an urgent basis and to have them apply for a DIN. Similarly, this could potentially help avoid delays in any Board appointments. Think of it as having a pool of potential directors that the Board can turn to as and when required.  Of course, at this stage, we do not know what fees (if any) will be charged to apply for a DIN and this may have an impact on how “large” that pool of backup directors may be. 

Key Takeaways

• All company directors will be required tohave a DIN.
• The key drivers behind the new regime isdirector traceability and prevention of phoenix activities.
• There are substantial criminal (potentially upto 12 months imprisonment) and civil penalties for failing to comply withobligations under the new regime.

If you are unsure of what yourobligations are under this new regime, please seek legal advice. You cancontact us on (07) 3160 0010 or at reception@nfplawyers.com.au.

* Schedule 2 to the Treasury Laws Amendment (RegistriesModernisation and Other Measures) Bill 2019 amending the CorporationsAct 2001 (Cth) and theCorporations (Aboriginal and Torres Strait Islander) Act 2006(Cth) for thepurposes of DINs. This Bill forms part of a suite of new bills designed tocreate a new Commonwealth business registry regime that will be governed by anew Act called the Commonwealth Registers Act 2019 (Cth).

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