The Government has this month announced a suite of legislative reforms to improve the integrity of data maintained by corporate regulators and target illegal phoenix activity. The proposed laws will introduce a single consolidated business register and impose a requirement for all company directors to hold a Director Identification Number (DIN).
Consolidated business register
The first draft bill aims to facilitate a modern government registry regime that is flexible, technology neutral and governance neutral. The scheme will see the consolidation of 35 existing business registers including the Australian Business Register, the ACN register, the Business Names Register, and the register of disqualified company directors.
The current legislative framework that covers the Australian Securities and Investments Commission’s (ASIC) business registers does not allow ASIC’s registry functions to be administered by another agency. These reforms will allow those functions to be shifted to a centralised Australian Business Register to improve user experience and streamline the collection of information.
Director Identification Numbers
The second draft bill introduces a requirement for all company directors to hold a DIN. The DIN scheme seeks to ensure that directors of companies can be clearly identified by requiring them to undergo a robust identification check. Currently, directors are only required to provide ASIC with their name, address and date of birth but little is done to actually verify this information.
It follows a recommendation in the Productivity Commission’s Business Set-Up, Transfer and Closure inquiry final report in December 2015 to promote good governance and curb illegal phoenix activities. The Productivity Commission believes that the scheme will prevent the use of fictitious identities and deter unscrupulous company directors that engage in repeated unlawful phoenix activity.
Illegal phoenixing occurs when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. The Productivity Commission estimates that illegal phoenixing costs the Australian economy between $1.8 and $3.2 billion each year.
So, what do company directors need to do?
Nothing yet – the DIN legislation is still in draft form. However, the proposed reforms are expected to receive bipartisan support after the Productivity Commission labelled the introduction of DINs a necessary reform to the country’s insolvency practices. Under the draft bill there are obligations that:
- require a director to apply for a DIN within 28 days of being appointed as a director;
- require a director to apply for a DIN within 28 days of being directed by the registrar to do so;
- prohibit a person from knowingly applying for multiple DINs; and
- prohibit a person from misrepresenting a DIN to a government or registered body.
Existing directors will have 15 months from the commencement of the new scheme to apply for a DIN.
There will be civil and criminal penalties for directors who fail to comply with the DIN requirement and contravene any of the four obligations above. The financial penalties are severe and in some circumstances company directors can be imprisoned for 12 months. Regulators may also issue infringement notices in relation to some of the contraventions to those who fail to comply.
What’s next and how can you plan for the changes?
Fortunately there’s still plenty of time before the new laws come into force. Public consultation on the draft bills closed on 26 October 2018, and we recommend that company directors now keep a close eye on these reforms as they progress. When the new laws are introduced, existing company directors should apply for a DIN as soon as possible to meet the 15 month deadline and avoid penalties under the new scheme.