Director Identification Numbers
What are Director Identification Numbers?
As part of the 2018-19 Budget, the Australian Government announced the introduction of Director Identification Numbers for new and existing company directors. Director Identification Numbers will be unique to individual directors and may be utilised by directors across multiple directorships.
Why introduce Director Identification Numbers?
The Australian Government wants to introduce the new measures to combat 'Phoenixing', which involves transferring the assets of an indebted company to a new company with the goal being to deliberately avoid paying the indebted company’s liabilities. Phoenixing is illegal because it places unsecured creditors and employees in a position where they may not be able to recover money owed by the company. The Australian Government estimates that the practice costs the Australian economy between $2.9 billion and $5.1 billion annually. The Australian Government believes that the introduction of Director Identification Numbers will better equip regulators and external administrators to track directors of failed companies and increase accountability in the corporate sector.
How do you obtain a Director Identification Number?
The proposed changes are set out in the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2018 (Bill), which proposes amending the Corporations Act 2001 (Cth) (Corporations Act) and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act) to require directors to apply to the registrar for a Director Identification Number.
If passed, the Bill will require current directors to apply for a Director Identification Number within 15 months of the new legislation coming into force.
New directors, on the other hand, will be required to apply for a Director Identification Number within 28 days of becoming a director of a company.
Any director (or alternate director) who fails to comply with the new measures may be liable for civil and criminal penalties. Under the Bill, failing to apply for a Director Identification Number within the relevant time limit may attract a criminal penalty of up to 60 penalty units and a civil penalty of up to $200,000 (individual) or $1 million (body corporate) under the Corporations Act, or a criminal penalty of 25 penalty units and a civil penalty of $200,000 under the CATSI Act. Failing to apply within the relevant time limit may also result in an infringement notice.
More serious criminal or civil liability may arise if a director applies for multiple Director Identification Numbers, provides false or misleading information in their application, or misrepresents their Director Identification Number to a Commonwealth body, registered body or company. These offences carry significant civil and criminal penalties, including terms of imprisonment. Civil penalties also apply to any person who aids, abets, counsels, procures, induces or has been knowingly concerned or is a party to such a contravention.
We will keep you updated on the progress of the Bill and, if it is passed, on the process involved in obtaining a Director Identification Number.