Directors Identification Numbers are Coming

It is surprising for many families in business that you do not need to prove the identity of a person when they become a director.  In effect a company could be created with fake directors’ present (like Donald Trump or Julius Ceasar) and ASIC will not impact or follow up on the application.

This creates potential for criminals to use a government created register to show credibility of a business or to hide real directors behind clearly fake people.

So, the government is introducing the requirement for every director to apply for a Directors Identification Number (DIN).  A DIN will be a unique number for each person that will stay with them for life – even if they are no longer acting as a director anymore.  The registration process will also make it more difficult to appoint people as a director without them knowing about, or consenting, to their appointment.

From 12 June 2022 every new company, including SMSF corporate trustees, will require that each director provides a DIN at the time of incorporation.  And large civil and criminal penalties will exist for those people who attempt to obtain a fake DIN.

The unknowing appointment as a director sometimes happens in a family business context.  One member of the family might be appointed as a director, without them fully consenting to the appointment, and later-on be pursued by creditors of that business.  Alternatively, the directors’ position becomes apparent in a family court setting where corporate webs are being discovered.

The issue of a DIN could potentially lead to a situation like becoming a SMSF trustee.  In effect advisors for SMSF trustees are required to show that the persons becoming SMSF trustees understand their obligations.  So issuing a DIN to a potential director could also lend itself to a short course on ensuring that potential directors understand their obligations and duties as a director.

The legislation will also apply to registered charities and not-for-profit organisations.

The primary purpose of the DIN is to help combat illegal phoenixing.  In that situations companies go into liquidation, generally with large tax debts, and the directors of those companies are persons who never existed.

The other benefit of a DIN is that the ASIC register, for directors, is convoluted.  A person could be registered with ASIC as “Mary Smith” “Mary Jane Smith” and “Mary-Jane Smith” and show up as three separate people.

It will also apply to existing directors (however this legislation is not yet in force).  So a large number of our clients as family businesses tend to rely heavily on companies for asset protection reasons (among others).

Importantly the Tax Office and ASIC will not manage the issue and management of the DIN.  An independent registrar will manage the issue and management of the DIN.  Further, it is not yet clear how a person will go about applying for a DIN and whether they will need to prove a 100-point ID check or going about the process in a similar manner to applying for a tax file number.

The introduction of the DIN regime will not impose a significant burden on business families using corporate entities.  We anticipate that the regime will be a one-off compliance hurdle that can be managed properly without any long term impact.  We are watching this space to ensure our clients are cutting through this new layer of red tape and undertaking their ongoing obligations properly so they can focus on their family and their business.

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