The deadline to register for Director Identification Numbers

Every director covered by the corporations act must register their Director IDs by November 30 2022.

The Director Identification Number (DIN) is a new Federal regime requiring all Australian company directors, or anyone who intends to become a director to obtain a unique number.

It is a 15-digit identifier that will be kept by the individual permanently, similar to a TFN. As there are over 2.7 million companies on the Australian Company Register, over 2 million directors will need to apply to the Australian Business Registry Services (ABRS) to apply for a DIN.

Set up as part of the Australian Government’s Digital Business plan and implemented in June 2020 through the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth). The new legislation added a new scheme under Part 9.1A of the Corporations Act 2001 (Cth) with the requirements set out from sections 1272-1272H.

A director ID starts with 036, which is the 3-digit country code for Australia under the International Standard ISO 3166 and ends in a generated 11-digit number and one more digit used for error detection.

Even if a director changes companies, stops being a director, changes their name or moves interstate or overseas, they will keep the same DIN.

Once you obtain your DIN through the ABRS, apply for your company through company123 for instant registration with ASIC.

Australian Business Registry Services

The ABRS is a new Federal service that works together with the Australian Securities and Investments commission (ASIC) that will bring together more than 30 AISC registers in one place.

As per the ABRS website the new service will:

• Make it easier for businesses to meet their registration obligations
• Improve the efficiency of registry service transactions
• Make business information more trusted and valuable

The DIN will be the first service to be delivered by the ABRS. By 2024 the ABRS plans to transition the following functions to one place:

• The companies register
• Business names registers
• Australian business numbers
• Professional and historical registers

This ensures that a more synergised experience for company directors in the future.

Purpose of the Director Identification Number

The ABRS seeks to create a single source of trusted and accessible business data in order to:

• Prevent the use of false or fraudulent identities used by directors
• Make it a more streamlined process for external administrators such as ASIC and other regulatory bodies to track and trace directors’ relationship with companies over time
• Identify and eliminate director involvement in activities such as 'phoenixing' or fraud
• Protect the privacy of directors by allowing them to be identified on public registers without disclosing personal information such as dates of birth and residential addresses

Given the increase in cyber crimes in recent years, the DIN aims to both protect the privacy of those doing the right thing and make it more difficult for those doing the wrong thing.

Below is explained various activities the DIN will attempt to prevent:

Illegal phoenix activity

Illegal phoenix activity occurs when a new company, for little or no value, continues the business of an existing company that has been liquidated or otherwise abandoned to avoid paying outstanding debts, which can include taxes, creditors and employee entitlements.

This occurs when company directors transfer the business to a new company without paying the true market value and leave any incurred debts with the old company. Once the assets have been transferred, the old company is placed in liquidation.

A liquidator is then appointed and given that there are no assets to recover, unfortunately no accounts payable can be paid. This is usually done with the same directors of the old company being the directors of the new company.

The DIN will help track the directors’ activity and will assist regulators in pursuing this illegal activity. The economic impact of illegal phoenix activity is found to be between $31 and $298 million in unpaid entitlements and costs the Government in over 1.5 billion in unpaid taxes and compliance. The penalties include large fines and up to 15 years imprisonment for those involved.

Director Fraud

Directors in a company, while indeed a separate entity to the company itself, have rights and obligations which are stringently enforced by regulatory bodies. When a company director breaches the law, they can be personally liable for the company’s debts and claims can be taken against them personally. It is important to note that director’s obligations may continue even after the company has ceased trading and has been deregistered.

Fraudulent directors from time to time use a company as a means to avoid debts or losses. However, under certain circumstance even the director may be liable for debts incurred by the company when the company does not have sufficient means to pay those debts when they fall due. This is usually the case in insolvency. It is a director’s duty to ensure that a company does not trade while it is insolvent. As such, it is important that directors understand the signs of insolvency such as cash flow issues, problems paying back suppliers and other creditors on time as well as other issues such as ongoing legal cases. If a company is insolvent, they need to assess whether the company can liquidate sufficient assets to bay debts when they fall due.

If a director allows for a company to trade while it is insolvent, the director may be acting illegally and be in preach of the Corporations Act 2001. This attracts a penalty of $200,000 and imprisonment of up to 5 years.

Other obligations the director breaches while a director of the company, they may be liable for. If a director acts illegally and as a result causes the company to suffer loss in the form of legal fees or by any other means, the director may have to compensate the company for the loss under the Corporations Act 2001. Other examples include where the company has employees, they are responsible to ensure the company meets its Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) obligations.

The DIN will prevent events such as:

• Employees miss out on wages, superannuation, and entitlements
• Suppliers or sub-contractors are left unpaid
• Other businesses are put at a competitive disadvantage
• The community misses out on revenue that could have contributed to community services

Case Study examples of Illegal Phoenix Activities

Read the full media release from ASIC here.

On the 22nd of March 2022, ASIC put out a media release, that showcased an illegal phoenix.

The former engineering company directors have been disqualified from managing corporations for the maximum period of five years due to their involvement in the failure of numerous companies.

ASIC found that both directors had:

• Failed to lodge required documents, including business activity statements, income tax returns and PAYG payment summaries for the companies they were directors of
• Failed to comply with their record keeping obligations and provide such records
• Made payments to related companies and trade creditors before paying ATO debts in relation to on of their companies
• Directed funds be paid to an account unrelated to the company, which was in breach of the deed of company arrangement, and
• Failed to prevent their company from incurring debts totaling $484,829.54 while it was insolvent.

ASIC also found that one of the directors:

• Failed to ensure both companies lodged necessary documents, which included activity statements, income tax returns and a PAYG payment summary
• Failed to take an active part in the management of one of their companies
• Failed to prevent their insolvent company from trading
• Failed to ensure that all creditors of one of their companies were paid fairly, and
• Funneled funds from debtors into the bank account of an associated party instead of paying them to the administrators of one of their companies, which was in breach of their company arrangement.

According to the media release, At the time of ASIC’s decisions, the six companies owed a combined total of $5,401,007.66 to unsecured creditors, including $4,751,142.43 to the ATO.

Another case study example is article published by the ABC news on 14 February 2020 about 'dummy director' scam that is using vulnerable Australians and leaving them in debt.

You can read the full ABC article here.

The ABC news article had uncovered a scam that targeted vulnerable Australians.

This scheme turned vulnerable people into directors or 'dummy directors' of a company, which in turn led to them being used by these companies to avoid paying creditors and avoid paying huge bills to the tax office.

This scam was also used to pile up expenses on a shell company's accounts and when the time came to pay, the company was liquidated.

The two case studies above are one of many reasons as to why the Director Identification Number is being introduced, however, the introduction of the Director Identification Number can also protect against issues presented in the cases above.

When Do I Need a DIN?

Corporations Act Director

As mentioned at the start, Corporations Act Directors have until November 30 this year to register for a Director Identification Number.

To be a director under the Corporations Act, you must:

• Be an individual who is at least 18 years old
• Not be disqualified from managing corporations, unless the appointment is made with the permission of ASIC or the Court.

For more information on the Corporations Act, visit the ASIC website.

If a person became a director or an alternate director of a company or other registered Australian body (such as an incorporated associated registered with AIC and which trades outside of the state of registration or a foreign company registered with ASIC) which is governed by the Corporations Act 2001 (Cth):

As seen above, if you became a director:

• On or before 31 October 2021: You will need to apply for the DIN before 30 November 2022.
• Between 1 November 2021 and 4 April 2022: You will need to apply for the DIN with 28 days of appointment.
• From 5 April 2022: You will need to apply for the DIN before your appointment as director.

CATSI Act Directors

To be a director under the CATSI Act, you must:

• Be an individual who is at least 18 years old
• Be a member of the Aboriginal and Torres Strait Islander corporation and an Aboriginal and Torres Strait Islander person (unless the corporation’s constitution or rule book says otherwise)
• Not be disqualified from managing an Aboriginal and Torres Strait Islander corporation, unless the appointment is made with the permission of the Registrar of Aboriginal and Torres Strait Islander Corporations or the Court.

For more information on the CATSI Act, visit the Office of the Registrar of Indigenous Corporations (ORIC) website.

If a person became a director or an alternate director of a company which is governed by the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth):

As seen above, if you became a director:

• If you became a director before 31 October 2021: you will need to apply for a DIN before 30 November 2023.
• If you become a director from 1 November 2022: you will need to apply before your appointment as director.

If you can’t apply by the date you need to, you can complete an Application for an extension of time to apply for a director ID.

How to Apply for DIN

From 1 November 2021, Australian resident directors will be able to apply via the ABRS website. This will require a myGovID account on a smart device.

If one does not wish to apply through the myGovID app, they can apply through their identification details including;

• Tax file number (TFN);
• Residential address as held by the Australian Taxation Office; and
• Information from two documents to verify their identity (eg Australian passport, drivers licence, birth certificate).

If the director of the Australian company is a foreign resident, they can apply if they have Australian documentation as per the above options.

To complete the online application, the foreign director will need to lodge a paper application and provide:

• A certified copy of one primary document, such as a foreign birth certificate, foreign passport; and
• A certified copy of one secondary document, such as a national photo ID, driver’s license.

The following people are authorised to certify the identity documents outside Australia are:

• Notary publics; and
• Staff at an Australian embassy, high commission or consulate, including consulates headed by Austrade honorary consuls.

The certifier must, in the presence of the foreign director, certify that each copy is a true and correct copy of the original document. This involves:

• Sighting the original document;
• Stamping, signing and annotating the copy of the identity document to state, ‘I have sighted the original document and certify this to be a true and correct copy of the original document sighted’;
• Initialling each page; and
• Listing their name, date of certification, phone number and position.

This is likely to be a time-consuming process. We recommend that foreign resident directors commence this process as soon as possible.

What to do with the DIN

Once the director has received the DIN, it must then be passed on to the relevant regulatory body being ASIC for companies under the Corporations Act or ORIC for companies under the Aboriginal and Torres Strait Islander Corporation Act.

Updating details for the DIN is a similar process to the application. If a director’s details change, the ABRS must be notified. This can be done through the ABRS website. The director must also inform the company of these changes in a meeting within 7 days for a Corporations Act company and 14 days for an Aboriginal and Torres Strait Island company. The company is also required to notify ASIC of the change within 28 days to avoid unnecessary late fees.

If a director does not comply with the obligations set under the new Act and causes an offence in relation to the DIN, they may incur and infringement notice leading to civil penalties to over $1 million and possible criminal charges up to 12 months of imprisonment. Possible breaches include applying for more than one DIN and using fraudulent information to obtain a DIN. 

Director ID offences

The ABRS will provide support and guidance to directors to assist them to understand and meet their director ID obligation.

ASIC’s enforcement role covers four new director ID offences under the Corporations Act 2001:

1. Failure to have a director ID when required to do so.
2. Failure to apply for a director ID when directed by the Registrar.
3. Applying for multiple director IDs.
4. Misrepresenting director ID.

Other Useful Information

A DIN will show regulators which companies a director is linked to. It is the obligation of the company secretary to ensure that information about a company and its officeholders is handled according to their legal obligations and is secure. It is not planned that a DIN will be public information in a similar manner to the privacy surrounding a TFN. However, this is subject to change in the future.

Below is the relevant section of the Act governing this program for your reference.

Giving and cancelling director identification numbers

             (1) The Registrar must, by notifying a person who has applied under section 1272A, give the person a director identification number if the Registrar is satisfied that the person's identity has been established.
  (1A) The Registrar may make a request of the person under subsection (5) for the purposes of satisfying the Registrar that the person's identity has been established.
             (2) The Registrar must make a record of the person's director identification number.
             (3) The Registrar may, by notifying a person, cancel the person's director identification number if:
                     (a) the Registrar is no longer satisfied that the person's identity has been established; or
                     (b) the Registrar has given the person another director identification number.
             (4) If:
                     (a) at the time the person is given a director identification number under this section, the person is not an eligible officer; and
                     (b) the person does not, within 12 months after that time, become an eligible officer;
the person's director identification number is taken to have been cancelled at the end of the 12 month period.
             (5) The Registrar may request, but not compel, the person:
                     (a) if the person has a tax file number--to give the Registrar a written statement of the person's tax file number; or
                     (b) if the person does not have a tax file number:
                              (i) to apply to the Commissioner of Taxation for a tax file number; and
                             (ii) to give the Registrar a written statement of the person's tax file number after the Commissioner of Taxation has issued it.

Requirement to have a director identification number

             (1) An eligible officer must have a director identification number.=
             (2) Subsection (1) does not apply if:
                     (a) the officer applied to the Registrar under section 1272A for a director identification number:
                             (i) before the day the officer first became an eligible officer (or an eligible officer within the meaning of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 ); or
                             (ii) if the regulations specify an application period--within that period, starting at the start of that day; or
                            (iii) within the longer period (if any) the Registrar allows under section 1272E, starting at the start of that day; and
                     (b) the application, and any reviews arising out of it, have not been finally determined or otherwise disposed of.
Note: A defendant bears an evidential burden in relation to the matters in subsection (2): see subsection 13.3(3) of the Criminal Code .
             (3) Subsection (1) does not apply if the officer became an eligible officer without the officer's knowledge.
Note: A defendant bears an evidential burden in relation to the matter in subsection (3): see subsection 13.3(3) of the Criminal Code .
             (4) An offence based on subsection (1) is an offence of strict liability.
Note: For strict liability , see section 6.1 of the Criminal Code .
             (5) A person who contravenes, or is involved in a contravention of, subsection (1) contravenes this subsection.
Note 1: Subsection (5) is a civil penalty provision (see section 1317E).

Contact the ABRS on 13 62 50 for more information regarding DIN or visit the ABR website at https://www.abrs.gov.au/director-identification-number

Please note the material in the blog is of a general nature and is current as of 25/11/2022. It is not intended to be legal advice and it is recommended that you seek professional advice in relation to DIN.