Under the current framework, ASIC does not verify the personal details of corporate officeholders. As a result, many companies are run under false names. This allows rogue company directors to deliberately avoid paying creditors by liquidating the company, transferring its assets to a new company and continue trading.
The Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 was passed by Parliament on 12 June 2020 and is expected to take effect in the first half of 2021. Schedule 2 of that bill imposes a legal requirement for directors to obtain a unique ‘Director Identification Number’ (DIN). Once assigned to a director, the DIN will be attached to him or her for life. It is envisaged that this will allow regulators to better monitor the activities of directors of failed entities.
The DIN program will be operated by the ATO. Under the transition rules, new directors will have 28 days to obtain a DIN. Current directors will be given 18 months to apply for a DIN and verify their identity. Failure to apply for a DIN within the required timeframe or providing false information will attract civil and criminal penalties.
The new program will also consolidate 31 ASIC business registers, including the companies register and the Australian Business Register. Accordingly, the ability of various government bodies to cross-report will be significantly enhanced.
Contraventions of the new scheme will attract civil and/or criminal penalties ranging from infringement notices to imprisonment. For example, the fraudulent use of a DIN can attract a maximum penalty of 12 months in prison or a $200,000 fine.
Whilst the legislation is likely to impede a rogue director’s ability to engage in fraudulent activity, it will also hand greater investigative power to numerous government agencies.
TAKEAWAYS
It is important to make yourself aware of the changing regulatory environment. The government is cracking down on rogue directors and the practice of avoiding corporate debt and tax liabilities. If you are a director and are unsure of the totality of your obligations, contact the team at Axia Litigation Lawyers – because Every Move Matters!
