ASIC accused of “sledgehammer” approach to Director ID compliance

The corporate regulator is taking a “sledgehammer” approach to company directors yet to sign up for a Director Identification Number, a senior lawyer says, as industry leaders question if the mandatory scheme is still fit for purpose.

Mark Addison, general counsel at Keypoint Law, this week said a client received a letter from the Australian Securities and Investments Commission (ASIC), informing them that they were under investigation.

Addison said the letter came as a shock to the client, who is a director of a company under liquidation, and another company which is inactive.

After contacting ASIC, the client was purportedly told the letter related to their lack of a Director Identification Number (DIN).

The company director promptly obtained a DIN and the matter was resolved.

However, the original letter did not refer to the DIN scheme at all, Addison said.

The letter, which used ominous references to an ASIC investigation, represented a “sledgehammer” approach to compliance, Addison continued.

Director Identification Numbers now mandatory

The Director Identification Number is a permanent 15-digit code assigned to Australian company directors.

It is intended to help regulators, shareholders, creditors, and consumers track directors through the corporate landscape.

It was designed to stop the creation of fraudulent director identities while making it harder to disguise illegal phoenixing activity.

After a months-long campaign to make company directors aware of their obligations, all existing company directors were given a deadline of November 30, 2022, to apply for a DIN.

New company directors are now required to hold a DIN before taking on director duties.

Civil penalties of up to $16,500 may apply to directors who breach DIN rules.

However, as many as 500,000 company directors were yet to sign up for a DIN as of December 2022.

A year later, the letter received by Addison’s client suggests many directors are yet to sign up.

Concerns over ASIC approach

Speaking to SmartCompany on Friday, Addison questioned ASIC’s method of contacting directors who are yet to sign up for a DIN.

“My major complaint was twofold,” he said.

“My client is a director of a company that is in liquidation. And hence, his first reaction was, ‘It must have something to do with that.’

“And the second issue is that if he had known it was just about a DIN, he just would have registered.

“He wouldn’t have needed to call me, he wouldn’t have needed to get legal advice, and wouldn’t have needed to incur costs and get freaked out by the whole process.”

The letter was “the equivalent of the corporate police requiring you to come in for an interview,” Addison continued.

“That’s not usually a friendly process.”

While the director was confronted by the letter, it is possible they only received word from ASIC after prior attempts at contact failed.

SmartCompany understands ASIC only sends compliance letters at the end of an outreach process that begins with the Australian Business Registry Service (ABRS), which is responsible for delivering the DIN system.

When the ABRS identifies a non-compliant director, they attempt to contact them directly with information about the sign-up process.

If the ABRS is unable to contact the director after several attempts, the matter is referred to ASIC.

Once ASIC commences a formal investigation, it can send letters to directors offering a formal record of interview.

SmartCompany understands every letter sent by ASIC, following an ABRS referral, has resulted in the recipient signing up for a DIN.

Questions over Modernising Business Registries scheme

Addison’s claim also captured the attention of senior figures in Australia’s insolvency sector, who stand to benefit from the DIN system.

John Winter is CEO of the Australian Restructuring Insolvency and Turnaround Association (ARITA).

ARITA has long supported the concept of a DIN, originally put forward by the University of Melbourne’s professor Helen Anderson, Winter told SmartCompany.

“It is a really important tool to help make sure that liquidators and ASIC can identify and track down dodgy directors,” he said.

“It has been for many years that directors could effectively register their dog as a director and then duck out themselves.”

However, insolvency professionals say the DIN scheme has been weakened by the scrapping of the Modernising Business Registers program.

New-look business registers, in conjunction with the DIN, would have helped stakeholders establish that “the John Winter that was listed against ARITA was the same John Winter that you were dealing with,” he said.

“That all fell apart when the Modernising Business Registers program blew its budget out, wasn’t able to achieve its goals, and the current government then abandoned the program.

“So what you’ve got is a situation where you are required to get a Director Identification Number, but companies have no way of recording it, or storing it, and the regulator doesn’t match who those directors are to the companies.

“So it just doesn’t work. It’s now quite a pointless activity.”

Millions of dollars in taxpayer funding will go towards supporting Australia’s existing registry systems, but Winter hopes for increased functionality before the next generational overhaul.

“We need to find a way, in the near future, that we have a reliable database, so that regulators, liquidators, when they’re brought in — and even at the most basic level, creditors, and other counterparties, and businesses — can find out who they’re doing business with.”

“If you haven’t got one, go get one”

While insolvency professionals deal with what they see as a disjointed DIN system, that does not mean company directors should ignore their obligations.

“The simple fact is, I need to have a DIN if I want to be a director in Australia,” Addison said.

“And if I don’t have one, then I will potentially face a civil penalty of several thousand dollars.

“But the lesson is, if you haven’t got one, go get one.”

Directors can apply for a free DIN via the Australian Business Registry Services website.