Directors will soon have to apply for a permanent unique identification number or risk hefty fines, following the passage of new legislation.
Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 has now been passed, giving effect to a new Director Identification Number (DIN) regime.
The DIN will require all existing and new directors to confirm their identity to a unique identifier that will be kept permanently, even if they cease to be a director.
The unique identifier will provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious identities, such as Elvis Presley or Bob Marley.
The new law will also combat phoenix activity, as well reduce time and cost for administrators and liquidators during the insolvency process by providing a more streamlined tracking of directors and their corporate history.
BDO business services partner Brendan Balasekeran said the new DIN regime would be akin to a driver’s licence number and allow regulators to minimise illegal or fraudulent behaviour by directors.
“Consider the ATO’s published data on phoenix activity and some nefarious operators signing up innocent people as directors, this change seems like a prudent decision to help the regulator keep directors accountable,” Mr Balasekeran said.
Under the new requirements, new directors will have to apply for a DIN before they are appointed as a director, unless the period is extended by the regulations or unless they are provided an exemption or extension by the registrar.
A transitional period for existing directors will be specified by a legislative instrument made by the minister.
Those appointed as a director within the first 12 months of the new regime’s operation will also be granted an additional 28 days to apply for a DIN.
There will be civil and criminal penalties for directors that fail to apply for a DIN within the applicable time frame, and for conduct that undermines the new requirements, including providing false identity information to the registrar or intentionally applying for multiple DINs.
Despite the passage of the bill, ASIC has previously warned that it may take up to two years to set up a new system.
“We want to build the Director Identification Number system onto the new platform, not old technology that’s more than 30 years old,” ASIC executive director Warren Day told a parliamentary committee earlier this year.
“We understand that haste from a number of industry bodies and government parties that it be done now or yesterday.
“We don’t want to rush it; we want to make sure that it is built on the new technology platform.”
The Treasury expects the new DIN regime will increase compliance costs on directors by approximately $21.5 million per year on average over 10 years.
It expects most of the regulatory burden will occur in the first 18 months as existing directors fulfil their obligation under this measure to obtain a DIN.
New modern registry
The bill will also put in place a modern government registry regime that will unify the Australian Business Register (ABR) and 31 existing registers administered by ASIC.
The unified Commonwealth business registers will be operated by the Australian Business Register at the ATO.
It aims to make it easier for businesses to meet their registration obligations, make business information more trusted and valuable, and improve the efficiency of registry service transactions.
The ATO will work alongside the Treasury; ASIC; the Department of Industry, Innovation and Science; and the Digital Transformation Agency to deliver the Modernising Business Registers program.
Source: Written by Jotham Lian, 18th June 2020, Accountants Daily.