In June this year, laws were passed to introduce a new director identification number (DIN) requirement. But what exactly is this new requirement, and does it apply to charities and NFPs?
Although the DIN requirement is unlikely to commence before June 2022, it is nevertheless worth understanding what is ahead and planning accordingly.
This article summarises the top five things you need to know about the DIN requirement as we currently understand it.
1. What is a DIN and why are they being introduced?
A DIN is a unique identifier number to be issued to each person who is a director or acting alternate director of a company or the equivalent role (such as a management committee member) of some incorporated associations.
Once a person’s identity has been confirmed, they will be issued with a single DIN which they will keep permanently even if they cease being a director, change directorships or act as a director for multiple organisations.
DINs are being introduced primarily to combat ‘phoenixing’. Phoenixing describes the process where directors transfer all the assets of one company to a new company for little or no consideration and carry on the same business as the old company through the new company, usually in circumstances where the old company is in some form of financial distress. A phoenix, as taken from mythology, rising from the ashes of the old company.
Phoenixing negatively affects creditors who fail to receive payments for goods or services from the old company, employees who have unpaid wages or superannuation entitlements with the old company and the general public through lost revenue to the Government. It is estimated that phoenixing costs the Australian economy between $2.9 billion and $5.1 billion per year.
DINs are expected to reduce phoenixing by ensuring directors can be properly traced between organisations and by preventing the use of fake identities. The introduction of DINs is also expected to promote good governance, streamline general corporate administration and improve data integrity and security.
2. Who will need a DIN?
Once the DIN requirement takes effect, all directors, acting alternate directors and management committee members of ‘registered bodies’ will require a DIN. Registered bodies are:
- companies, registered foreign companies, or registered Australian bodies (such as incorporated associations with an Australian Registered Body Number (ARBN)) which are registered under the Corporations Act; and
- Aboriginal and Torres Strait Islander corporations which are registered under the CATSI Act.
Initially, officers that are not directors and de facto or shadow directors will not be required to have a DIN. However, the law leaves flexibility for this in the future.
3. Will directors of charities and not-for-profits need a DIN?
Although there are little to no reports of phoenixing in the charity and NFP sector, the DIN requirements will apply to all ‘registered bodies’ (including charities and NFPs) even if the organisation is also regulated under another law such as the Australian Charities and Not-for-profits Commission Act 2012 (Cth). This means that directors of NFP registered bodies (including charities registered with the Australian Charities and Not-for-profits Commission) will be required to have a DIN.
4. When will DINs be required?
The DIN requirement is set to commence on 22 June 2022 or on such earlier day as may be proclaimed by the Governor-General.
For the first 12 months after the DIN requirements take effect, newly appointed directors will have an additional 28 days to apply for a DIN. In other words, for the first 12 months a person must apply for a DIN within 28 days of being appointed as a director. After the first year anniversary of the DIN requirement taking effect, a DIN must be applied for prior to being appointed as a director.
It is currently unclear how long a person who is a director at the time the DIN requirement comes into effect will have to apply for a DIN.
To provide greater flexibility, the law allows individuals who are not directors but who intend to become directors within 12 months to apply for a DIN. This means people who have not yet been appointed as a director may apply for a DIN proactively. However, a DIN allocated to a prospective director is automatically cancelled if that person does not become a director within 12 months of being given a DIN. The DIN may be reallocated to the same person should they later reapply.
5. What happens if a director does not obtain a DIN?
- if a director of a CATSI organisation fails to apply for a DIN within the applicable time frame, they can face a civil penalty of up to $200,000; and
- if a director of an organisations registered under the Corporations Act fails to apply for a DIN within the applicable time frame, they can face a civil penalty of 5,000 penalty units (which is currently $1,050,000) or three times the benefit derived, or detriment avoided because of the contravention (whichever number is higher).
There are also other large civil and criminal penalties associated with actions which undermine the DIN regime, such as providing false identification documents. Given these penalties, it is crucial organisations and directors (or prospective directors) stay up to date with the new DIN laws to ensure DINs are obtained when required.
For more information about DINs see Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019.