Directors will be required to register for a unique identification number that they will keep for life, much like a tax file number under a rewrite of Australia’s business registers.
ASIC does not currently verify the identity of directors and Elvis Presley and Bob Marley could “quite possibly” be registered. Or at least that was the view of former ASIC Commissioner John Price at a 2020 Parliamentary inquiry.
The introduction of the Director Identification Number (DIN) regime is part of the Government’s Modernisation of Business Registers (MBR) Program creating greater transparency and tracking the movements of individuals over time. The MBR will unify the Australian Business Register and 31 ASIC business registers, including the register of companies. In effect, the system will create one source of truth across Government agencies for individuals and entities and will be managed by the Australian Taxation Office (ATO).
Why a director ID?
Under the new regime, all directors will need to have their identity confirmed when they consent to being a director. The result is an ID system that traces a director’s relationships across companies, enabling better tracking of directors of failed companies and prevents the use of fictitious identities.
The target is illegal phoenixing. Phoenixing is when directors transfer the assets of an existing company to a new company without paying full value, leaving the debts with the old company. Phoenixing has a ripple effect in the community and is estimated to cost between $2.9 billion and $5.1 billion annually. The real face of the impact is to the unpaid creditors – mostly customers and contractors, unpaid employee entitlements, and the broader cost through unpaid taxes.
Who will need a director ID?
The DIN is very broad and introduces the concept of an ‘eligible officer’. An eligible officer is a director who:
- is appointed to the position of director, or is appointed to the position of an alternate director and is acting in that capacity (regardless of the name that is given to that position); or
- any other officer of the registered body who is an officer of a kind prescribed by the regulations.
The definition picks up the concept of ‘shadow directors’ who act in the capacity of directors through influence and control but are not directors by title. That is, its feasible that someone who is not a director but is seen to be making decisions on behalf of the company can be held to account.
When the system opens, directors will need to apply for an ID through the Australian Business Register system through their myGov account.
Existing directors will have until 30 November 2022 to acquire a DIN. For the first year of the program, new directors will have 28 days to apply for a DIN from the time of their appointment. From the first year onwards, you will need to have a DIN prior to being appointed as a director.
It’s important that anyone agreeing to be a director understands the implications. Being a director is not just a title; it is a responsibility. At a financial level, directors are responsible for ensuring that the company does not trade while insolvent. The by-product of this is that the directors may be held personally liable for the debt incurred. The director penalty regime has also been tightened up in recent years to ensure that directors are personally liable for PAYG withholding, net GST and superannuation guarantee charge liability if the company fails to meet its obligations by the due date. For many small businesses, the directors are also often personally responsible for company loans secured against property such as the family home.
Failing to perform your duties as a director is a criminal offence with fines of up to $200,000 and five years in prison.
Ignorance is not a legal defence. Don’t sign anything unless you understand the consequences.
Director and Officeholders (D&O) insurance is available to help protect directors for alleged wrongful acts including claims of mismanagement. Contact your preferred broker to discuss further or give us a call and we can introduce you to brokers within our professional network.
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Give the FMA team a call to find out more about our Independent Director and Board Advisory services.