Phoenix companies to become a creature of mythology: Introduction of Director Identification Numbers

“…And, like a phoenix, from the ashes I rise” – Usually this would be an uplifting mantra, unfortunately phoenix companies can leave creditors out of pocket and without a means of redress.  ‘Phoenixing’ is where a company transfers all (or substantially all) of its assets to a new and eerily similar company just before it becomes insolvent (usually as a means of avoiding repaying creditors). This process of company rebirth is, in many cases, illegal[1]. The impact of illicit phoenixing on the Australian economy is colossal, as it is estimated to cost taxpayers between 2.85 billion and 5.13 billion annually.[2]

After months of preparation, it is no surprise that, on 12 June 2020, the government passed the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (‘The Bill’), part of which was specifically targeted at combatting illicit phoenixing. Schedule Two of the Bill introduces the Director Identification Number (‘DIN’), which is a unique numerical identifier that will be permanently associated with individual directors. It is intended that directors will be more accountable for illicit phoenixing instead of being able to disappear into the ether, hiding behind aliases such as ‘Mickey Mouse’, ‘Homer Simpson’ or simply a different spelling of their true name.

While it remains unclear when the Bill will come into effect (as the Government is busy tackling Novel Coronavirus-related challenges) – it is likely that this law will be in place sometime in 2021 – 2022. Once this new legislation is in force, existing directors will have a window of 18 months to obtain a DIN and new directors will have a period of 28 days from the day they become a director to apply for a DIN. This new system will be handled by a Registrar who will have the power to register, record, cancel and reissue DINs. Directors will not be able to have multiple DINs, indeed, attempts to procure more than one DIN will be punishable by law.

Directors of Australian companies have welcomed these new measures; however, they have voiced concerns that this new online registration system may compromise their privacy, especially in light of recent mass data breaches in Australia. Although unauthorised disclosure of this information can result in a maximum penalty of two years imprisonment, there are fears that this will not be a deterrent for international actors.

Ultimately, the introduction of the DIN is a much-needed reform that will streamline many of ASIC’s nefarious application procedures and will help to prevent illicit phoenixing. If you have any questions or queries about how best to prepare your company for these new measures please contact Riley Berry or the Business Team at BAL Lawyers.

Written by Riley Berry with the assistance of Claudia Weatherall.

[1] A legal avenue for saving a business in distress is through the appointment of a Voluntary Administrator.