Over the past 12 months, the Commonwealth has rolled out new laws to combat illegal phoenixing activities. Most recently, this includes the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019. This bill was passed by both Houses on June 12, and is currently awaiting Royal Assent. Once enforced, the Bill will amend the Corporations Act 2001 (Cth), introducing a requirement for all Company Directors to hold a unique Director Identification Number (DIN).
- Each Director shall be assigned a unique DIN. The director will keep this number for life, even upon resignation, or appointment to a different company.
- Any person who becomes a Director of an incorporated entity will have to confirm their identity prior to being assigned their own DIN.
- These changes are expected to occur in mid 2020, and the specific processes surrounding the introduction of the legislation have not been finalised.
Phoenixing encompasses the sale or transfer of company assets to another related entity leaving liabilities in the vendor equity. The related company will usually be owned or controlled by the same person, with the sale or transfer occurring at an undervalue. The Fair Work Ombudsman has estimated unlawful phoenixing costs the Australian economy approximately $2.85 to $5.13 billion per year.
Currently, Directors do not have to verify their identity. This leaves an opportunity for the use of false names (‘Elvis Presley’ etc.) and therefore makes phoenixing activity easier to get away with. The introduction of DINs will provide greater insights to regulators, businesses and individuals on the identity and affiliations of Directors and also prevent the use of fictitious identities.
The procedure to obtain a DIN is not included in the primary legislation but in a separate legislative instrument which is expected to be made subject to public consultation in coming months. It is expected that existing Company Directors will be required to make an application for a DIN in a timeframe, of which will be specified by the ASIC Registrar. When the Bill comes into force, ASIC will notify Directors of their obligations and the timeframe of which they must apply. Individuals intending to become a Company Director will have to apply for a DIN before they are registered as a Director. However, the initial 12 months of the rollout will include a transition period whereby new Company Directors must apply for an identification number within 28 days of becoming a Director.
Penalties for failure to comply
There is civil and criminal penalties under the legislation for acts including:
i) failing to apply for a DIN within the specified timeframe;
ii) providing a false identity; and
iii) intentionally applying for multiple DINs.
If you have concerns or questions about navigating the new regime and how it may affect you please contact our team of specialist lawyers at firstname.lastname@example.org.