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The New Lifetime Director IDs

MAY 2021

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.

Director IDs are a key part of the Federal Government's new business register as it aims to streamline Australia's 31 business registers into the Australian Business Registry Services (ABRS).

ASIC does not currently verify the identity of directors and the view of the former ASIC Commissioner, John Price, was that names such as Elvis Presley and Bob Marley could "quite possibly" be registered when he presented to 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.

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).

What is a DIN and what will it do?

Under the new regime, all directors will need to have their identity confirmed when they consent to being a director.

Directors will then keep this number permanently, even if they cease to be a director – the number will not be issued to another person. 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. Once the assets have been transferred, the old company is liquidated leaving creditors out of pocket. 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.

Once the assets are transferred to a new company, the directors then continue to operate the business in a new entity. They just set aside the problems and start again with the benefit of the good parts of their old company as a foundation.

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); o
  • 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.

An eligible officer is a director of a:

  • company
  • registered foreign company
  • registered Australian body under the Corporations Act such as an association or a charity, or
  • an Aboriginal and Torres Strait Islander corporation (which are registered under the CATSI Act).

How do you register a DIN?

When the system opens, directors will need to apply for an ID through the Australian Business Register system through their myGov account. A myGov account creates digital credentials to verify who users are.

When directors register, they will need to declare that the information provided is true and correct, that they are or will be an eligible officer within 12 months, and that they do not have an existing ID (or applied for one). 

What if I'm already a director?

Existing directors will have until 30 November 2022 to acquire a DIN (30 November 2023 for directors of corporations under CATSI).

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, they will need to have a DIN prior to being appointed as a director.

Unlike the existing system that merely registers information, the new regime will verify a director's information and may utilise other sources of information such as a driver's license and/or link to existing client records held by the ATO.

The problem of directors in name only

The new regime will not overcome one problem area – where naive participants are encouraged to become directors in name only such as elderly parents, or a spouse. That is, the identity of that person is legitimate but their role as a director is merely window dressing and they do not fulfil the role as active participants. It's a situation that is not uncommon in family groups.

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 duties as a director is a criminal offence with fines of up to $200,000 and five years in prison.

Better monitoring and bigger teeth for ASIC

The introduction of a structured director verification system comes with greater controls and influence by the regulators to enforce the law with civil penalties of up to $200,000 in situations which include:

  • Failure to register within the relevant timeframes
  • Applying for multiple DINs
  • Misrepresenting a DIN, and
  • Accessorial liability where someone seeks to pervert the system

The failure to register when required is a strict liability and the regulator does not have to prove fault, they will simply issue an infringement notice.

Planning to become a director or need to understand your obligations?

Very simply, get advice from your accountant to understand what you are signing on to do as a director of a business or company structure. Ignorance is not a legal defence. Don't sign anything unless you understand the consequences.

For more information, contact us on 02 9957 4033.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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