House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP)

Chapter 2 Director identification numbers

Outline of chapter

2.1 Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 amends the Corporations Act and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) to introduce a director identification number (DIN) requirement. It sets out:

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the persons to which the new requirement applies;

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the obligations associated with the new requirement;

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how the new requirement is administered; and

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the consequences of contravening the new law.

Context of amendments

2.2 Phoenixing occurs when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring its assets to another company. This impacts on creditors who fail to receive payments for goods and services, employees through lost wages and/or superannuation entitlements and the general public through lost revenue to the Government. The total cost of phoenixing to the Australian economy is estimated to be between $2.9 billion and $5.1 billion annually.

2.3 The Commonwealth Government currently has a number of initiatives underway to deter and penalise phoenix activity in order to protect those who are negatively affected by such fraudulent behaviour. One initiative is the introduction of a DIN, which the Government announced on 12 September 2017.

2.4 The DIN will require all directors to confirm their identity and it will be a unique identifier for each person who consents to being a director. The person will keep that unique identifier permanently, even if they cease to be a director. It is not intended that a person's DIN will ever be re-issued to someone else or that one person will ever be issued with more than one DIN (except in limited circumstances such as when a record is corrupted). As such, the DIN will provide traceability of a director's relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious identities. This will assist regulators and external administrators to investigate a director's involvement in what may be repeated unlawful activity including illegal phoenix activity.

2.5 To date, although the law has required that directors' details be lodged with ASIC, it has not required the regulator to verify the identity of directors. This verification aspect of the DIN will improve the integrity of the data and help with enforcement action associated with phoenixing.

2.6 The new DIN regime will also offer benefits beyond combating phoenixing. For instance, simpler more effective tracking of directors and their corporate history will reduce time and cost for administrators and liquidators, thereby improving the efficiency of the insolvency process. In addition, the new regime will improve data integrity and security. For example, it would be possible to allow directors to be identified by a number rather than by other more personally identifiable information.

2.7 The introduction of a DIN was recommended by the Productivity Commission in its September 2015 final report into Business Set-up, Transfer and Closure. ^[45] In the report, the Productivity Commission noted its confidence that the introduction of a DIN would likely be of significant net benefit to the community as a whole.

Summary of new law

2.8 The new law amends the Corporations Act and the CATSI Act to introduce a DIN requirement. The new requirement assists regulators to better detect, deter and disrupt phoenixing and improves the integrity of corporate data maintained by the registrar.

2.9 Under the new requirement a person appointed as a director of a body corporate registered under the Corporations Act or the CATSI Act must apply to the registrar for a DIN. The person must apply before they are appointed a director unless the period is extended by the regulations or unless they are provided an exemption or extension by the registrar. After receiving an application, the registrar must provide the director with a DIN if the registrar is satisfied that the director's identity has been established.

2.10 The registrar is provided with powers to administer the new requirement. These include powers to: issue DINs; keep necessary records; cancel and reissue DINs; determine the numbering plan for the new requirement; and, determine how directors can establish their identity. The registrar may make data standards, by way of legislative instrument, in relation to these and other matters.

2.11 There are civil and criminal penalties for directors that fail to apply for a DIN within the applicable timeframe. The registrar, or a senior member of its staff, may also issue infringement notices in relation to such conduct. There are also civil and criminal penalties which apply to conduct that would otherwise undermine the new DIN requirement. For example, there are criminal penalties for deliberately providing false identity information to the registrar, intentionally providing a false DIN to a Government body or relevant body corporate, or intentionally applying for multiple DINs.

2.12 The new requirement contains transitional provisions that apply in relation to a person that is appointed as a director at the time the new requirement starts to apply. Such a person has the period specified in a legislative instrument made by the Minister to apply for a DIN. In addition, during the first 12 months of the operation of the new requirement, a person who is appointed as a director will have an additional 28 days to apply for a DIN (that is, for the first 12 months a person must apply for a DIN within 28 days of being appointed as a director).

Comparison of key features of new law and current law

Detailed explanation of new law

2.13 Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 amends the Corporations Act and the CATSI Act to introduce a DIN requirement.

2.14 The objective of the new requirement is to promote good corporate conduct. In particular, the new requirement assists regulators to detect and address unlawful behaviour and, through doing so, deter such behaviour. It does so by requiring each appointed director of a registered body corporate to have a unique identification number.

2.15 To implement the DIN requirement, the Bill inserts a new part into both the Corporations Act and the CATSI Act. The new parts detail:

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the persons to which the new requirement applies;

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the obligations associated with the new requirement;

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how the new requirement is administered; and

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the consequences of contravening the new law.

To whom does the new requirement apply?

2.16 The new law is drafted so that the requirement to obtain a DIN applies in relation to body corporates registered under the Corporations Act or the CATSI Act (a registered body).

Who is an eligible officer?

2.17 The new law defines who is an eligible officer for the purposes of the new requirement. An eligible officer is a director of a registered body who:

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is appointed to the position of director, or is appointed to the position of an alternate director and is acting in that capacity (regardless of the name that is given to that position); or

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any other officer of the registered body who is an officer of a kind prescribed by the regulations.

[Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, section 308-15 of the CATSI Act and section 1272B of the Corporations Act]

2.18 The DIN requirement therefore initially operates with respect to only appointed directors and acting alternate directors. It does not, at least initially, extend to what are commonly referred to as de facto ^[46] or shadow directors ^[47] . This reflects that the current operation of the broader registry regime applicable to registered bodies does not generally extend to de facto and shadow directors.

2.19 As noted above, the definition of eligible officer may be extended by regulation to any other officers of a registered body. The term 'officer' in relation to a registered body is defined in section 9 of the Corporations Act and section 683-1 of the CATSI Act. Those sections define the term to mean a director (including a de facto or shadow director), a secretary, and a range of other persons that may affect the business of a registered body, including administrators, receivers and liquidators.

2.20 The effect of this regulation making power is to allow the DIN to be extended to any such officer of a registered body if doing so is appropriate. This ability provides the flexibility necessary to future-proof the new requirement to ensure its ongoing effectiveness. Any such regulations will be subject to parliamentary scrutiny through the disallowance procedures of the Legislation Act 2003.

2.21 The new law also gives the registrar the power to exempt a person or class of person from being an eligible officer. This allows the registrar to respond where the imposition of the requirement would have unintended consequences or would otherwise be unsuitable for a particular person or class of persons. Any exemption that relates to a class of persons is a legislative instrument and is therefore subject to parliamentary scrutiny through the disallowance procedures of the Legislation Act 2003. ^[48] An exemption in relation to a particular person would not be by way of legislative instrument because any such decision would be of an administrative character - that is, determining particular cases in which the law is not to apply. ^[49] As these decisions are not made by legislative instrument, the registrar must notify the relevant person of the exemption. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, section 308-15 of the CATSI Act and section 1272B of the Corporations Act]

2.22 All references to 'director' are references to a person to which the new DIN requirement applies unless indicated otherwise.

What is a registered body?

2.23 For the new DIN requirement to apply to a person, the person must be a director of a registered body. For the purposes of the new law, a registered body is:

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a company, registered foreign company or registered Australian body (which are registered under the Corporations Act); or

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an Aboriginal and Torres Strait Islander corporation (which are registered under the CATSI Act).

Companies

2.24 The meaning of 'company' is defined in section 9 of the Corporations Act. That section defines company as meaning a company registered under the Corporations Act. Chapter 2A of the Act deals with the registration of companies, including what types of companies can be registered ^[50] and how a company is registered ^[51] .

2.25 Applying the DIN in relation to companies ensures that directors of all Australian companies are subject to the new DIN requirement. This includes directors of companies that are responsible for managed investment schemes ^[52] and registered charities ^[53] . It also includes directors of companies that are preserved by transitional provisions in Chapter 10 of the Corporations Act. ^[54] Registered foreign companies

2.26 Registered foreign company is defined in Section 9 of the Corporations Act as meaning a foreign company that is registered under Division 2 of Part 5B.2 of the Corporations Act. That division prohibits a foreign company from carrying on business ^[55] in Australia ^[56] unless it is registered or its application for registration is pending ^[57] , and sets out the requirements for registration ^[58] .

2.27 By virtue of the definition of 'foreign company' ^[59] , a registered foreign company may in some instances be an unincorporated body. However, the DIN requirement does not operate in relation to these unincorporated bodies as they cannot hold property in their own name and are therefore not prone to issues such as phoenixing activity. For this reason and for consistency with the new requirement's operation with respect to Australian bodies, the requirement only operates with respect to registered foreign companies that are body corporates. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, item 11, paragraphs 1272B(1)(a) and 1272B(1)(b) of the Corporations Act]

2.28 Applying the DIN requirement to foreign companies that are body corporates ensures that the requirement operates in a jurisdictionally neutral manner. In particular, it ensures that the requirement applies to body corporates incorporated in an external territory or otherwise outside Australia, where those bodies carry on business in Australia. This ensures that the new requirement operates consistently, regardless as to where a registered body is incorporated. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, item 11, subsection 1272B(1) of the Corporations Act]

Registered Australian Body

2.29 Registered Australian body is defined in section 9 of the Corporations Act as a 'registrable Australian body' ^[60] that is registered under Division 1 of Part 5B.2 of the Corporations Act. Section 601CA of that Act provides that a registrable Australian body must not carry on business in a state or territory unless:

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that state or territory is its place of origin;

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it has its head office or principle place of business in that state or territory; or

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it is registered under Division 1 of Part 5B.2 or its application for registration is yet to be dealt with.

2.30 Applying the DIN requirement to registered Australian bodies ensures that the regime applies in relation to body corporates that are not companies, but which carry on business in one or more states or territories other than their home jurisdiction. As with registered foreign companies, some registered Australian bodies are unincorporated. However, the new requirement does not operate in relation to these bodies as they cannot hold property in their own name and are therefore not prone to issues such as phoenixing activity. The new requirement only applies in relation to registered Australian bodies that are body corporates. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, item 11, subsection 1272B(1) of the Corporations Act]

Aboriginal and Torres Strait Islander corporations

2.31 The CATSI Act is the law that establishes the role of the Registrar of Indigenous Corporations and allows Aboriginal and Torres Strait Islander groups to form corporations. Registration under the CATSI Act is mostly voluntary. However, some corporations-for example, 'prescribed bodies corporate' set up under the Native Title Act 1993 -are required to register under the CATSI Act.

2.32 The CATSI Act sets out the meaning of Aboriginal and Torres Strait Islander corporation and how such corporations are registered. Section 16-5 of the CATSI Act provides that an Aboriginal and Torres Strait Islander corporation is a corporation registered under the CATSI Act. Part 2-2 of the Act deals with applications for registration. In particular, section 42-1 provides that a corporation comes into existence on registration under the CATSI Act.

2.33 Applying the DIN requirement to directors of Aboriginal and Torres Strait Islander corporations ensures that these directors are treated equivalently to those of registered bodies under the Corporations Act. It also ensures that the members and creditors of all registered bodies may benefit from the regime. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, item 5, subsection 308-15(1) of the CATSI Act]

What obligations are associated with the new DIN requirement?

2.34 The new law inserts four obligations in relation to the new requirement. These obligations:

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require a director to apply for a DIN prior to being appointed as a director;

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require a director to apply for a DIN within a prescribed period of being directed to do so by the registrar;

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prohibit a person from knowingly applying for multiple DINs; and

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prohibit a person from misrepresenting a DIN to a government body or registered body.

Directors must apply for a DIN prior to being appointed

2.35 The first obligation requires a director to apply for a DIN prior to being appointed as a director or within any later period specified in the regulations. While the new law requires that all directors have a DIN, it is a defence if the director applied to the registrar for a DIN prior to being first appointed as a director of any registered body (or within such later period as the regulations may allow) and the application has not yet been dealt with. ^[61] [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsections 308-20(1) and 308-20(2) of the CATSI Act and subsections 1272C(1) and 1272C(2) of the Corporations Act]

2.36 The applicable point by which a director must have applied for a DIN for the purposes of the above mentioned defence may be extended by the registrar for a particular director or for a specified class of directors. For a particular director, the period may be extended on application by the director for the period specified in the application or for such other period as the registrar considers reasonable. As such an extension applies the laws to a particular case, it is of an administrative character. An extension relating to a class of persons, however, must be made by legislative instrument as such an extension is legislative in character. As such, any class extensions are subject to parliamentary oversight through the disallowance process under the Legislation Act 2003. The ability to grant extensions provides the registrar with discretion to extend the period for compliance where warranted. ^[62] [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, section 308-30 of the CATSI Act and section 1272E of the Corporations Act]

2.37 It is also a defence in relation to this obligation if the director was appointed without their knowledge. This defence is aimed at ensuring that a person does not breach the obligation because of the wrong doing of another, for example, due to identity theft or forgery. In such a situation it would be more appropriate for the regulator to explore other options, for example, investigating whether a company has breached section 201D of the Corporations Act, which requires a person to consent to being a director. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsection 308-20(3) of the CATSI Act and subsection 1272C(3) of the Corporations Act]

2.38 A defendant carries an evidential burden for establishing both defences related to this obligation. The evidential burden in these defences has been reversed because the subject of the defences is peculiarly within the knowledge of the defendant and is significantly more difficult and costly for the prosecution to disprove than for the defence to establish. The burden of proof on the defendant is an evidential burden. To satisfy this evidential burden the defendant must adduce or point to evidence that suggests a reasonable possibility that the defence exists. ^[63] Once this is done, the prosecution bears the burden of proof.

2.39 This obligation is designed to ensure the effectiveness of the new requirement and that it does not have unintended consequences. In particular:

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the obligation's compulsory nature ensures that all directors (except those granted an exemption) apply for a DIN, which is essential for the new requirement to achieve its objective;

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the fact that the obligation is an obligation to apply for a DIN means that a director does not breach the obligation where there is a delay in processing an application for reasons beyond their control; and

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the requirement for every director to apply for a DIN regardless of the length of their appointment ensures that the DIN requirement cannot be avoided by a person stepping into the role of a director for short periods at critical times.

2.40 The new law does not include an offence prohibiting the provision of false or misleading information to the registrar. For this purpose, the new law relies upon existing prohibitions that cover such matters including section 137.1 of the Criminal Code, section 1308 of the Corporations Act and section 561-1 of the CATSI Act. Each of these sections prohibits the provision of false or misleading information. Such prohibitions are important as a deterrent against the provision of false or misleading information to the registrar (for example, as a deterrent against a person attempting to acquire a DIN against a false identity).

2.41 The new law includes transitional arrangements for persons who are directors at the time the new requirement starts. Such persons have to apply for a DIN within the period specified in a legislative instrument made by the Minster. There is no requirement for such persons to apply for a DIN until this instrument is made. ^[64] In addition, a transitional arrangement provides an extra 28 days for a director to apply for a DIN during the first year of operation of the new requirement (that is, during the first year of the new requirement a person has 28 days to apply for a DIN from date they are first appointed a director). Paragraphs 2.80 to 2.81 of this memorandum provides further information about these arrangements.

Directors must apply for a DIN upon being directed to by the registrar

2.42 The second obligation requires a director to apply for a DIN within a prescribed period of being directed to do so by the registrar. The prescribed period may be determined by the registrar in its direction by the registrar specifying the number of days a director has to apply for a DIN. If the number of days is not specified in the direction, the prescribed period is 28 days from the date the direction is given to the director. The registrar may also extend the period that a director has to comply with a direction. ^[65] [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsections 308-25(1) and 308-25(2) of the CATSI Act and subsections 1272D(1) and 1272D(2) of the Corporations Act]

2.43 This obligation ensures the registrar can require a director to apply or reapply for a DIN where it is desirable to do so. This ability is important in enabling the registrar to effectively administer and maintain the new DIN requirement. For example, the registrar may wish a director to apply or reapply for a DIN because:

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the director has never applied for a DIN;

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the director's existing DIN profile has been lost or corrupted; or

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the registrar wishes to verify the director's identity.

2.44 This obligation does not include the defences which apply in relation to the first obligation discussed above. Those defences are not relevant to this obligation. Unlike the first obligation, this obligation is not breached until the end of the relevant period. Similarly, the defence of being appointed without knowledge is not relevant in the present context where the registrar has directed the person to apply because they are a director.

A person must not knowingly apply for multiple DINs

2.45 The third and fourth obligations associated with the new DIN requirement are necessary to ensure the integrity of the new requirement.

2.46 The third obligation prohibits a person from applying for a DIN if the person knows that they already have a DIN. However, the prohibition does not apply in the following circumstances:

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where the registrar has directed the person to reapply for a DIN ^[66] - this defence ensures that this obligation does not conflict with the ability of the registrar to require a director to reapply for a DIN; or

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where the person applied for the additional DIN under another Act - this defence ensures that a person cannot be convicted of breaching this obligation under both the Corporations Act and the CATSI Act if the violation only relates to one of those Acts.

[Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, section 308-40 of the CATSI Act and section 1272G of the Corporations Act]

2.47 The prohibition would not be contravened only because a person applies for a DIN in circumstances where they have previously held a DIN that has been cancelled. In such circumstances the person would not already have a DIN at the time they subsequently apply for a DIN. This is the case whether the cancellation occurred by operation of law (for example, where the person's DIN was automatically cancelled because they did not become a director within 12 months of being given it) or due to a decision of the registrar.

2.48 This obligation is designed to prevent a person from seeking to circumvent the new requirement by obtaining multiple DINs. The integrity of the regime requires each director to hold no more than one DIN. A person holding multiple DINs would be difficult to identify and track in relation to their directorships and corporate activities.

A person must not misrepresent a DIN to a government or registered body

2.49 The fourth (and final) obligation associated with the new DIN requirement is directed at preventing a person misrepresenting a DIN to a body that is likely to rely upon it for regulatory compliance or identification purposes. In particular, the new law prohibits a person from intentionally representing to a Commonwealth body or a registered body that a DIN is associated with a person when it is not. For this purpose, the new law uses the definition of Commonwealth body set out in the new Commonwealth Registers Bill 2019 discussed in Chapter 1 of this memorandum. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsection 308-45 of the CATSI Act and section 1272H of the Corporations Act]

2.50 It is important that directors honestly report DINs to Government and regulated bodies. These bodies may rely upon the DIN to establish the identity of directors and those seeking to become directors (for example, to confirm that the person has not been disqualified). A registered body may also be required under the new law to collect and report the DIN of a newly appointed director for the purpose of facilitating the administration of the new requirement. Such a requirement would not be possible in a regime where people were not required to honestly report DINs.

How is the new DIN requirement administered?

2.51 The administration of the new requirement relies on the new registry regime outlined in Chapter 1 of this memorandum. Under the new requirement, the registrar is responsible for the administration of all functions and powers that are of a registry nature. These functions and powers are explained in this section of this explanatory memorandum. The remaining functions and powers are administered by the regulators that have the general administration of the Corporations Act and the CATSI Act, namely ASIC and the Office of the Registrar of Indigenous Corporations (ORIC) ^[67] respectively. These remaining functions and powers relate to the enforcement of the new requirement through the civil penalty and criminal offence provisions discussed in the next section of this memorandum.

What powers and functions does the new law confer on the registrar?

2.52 The new law provides the registrar with the functions and powers it requires to administer the registry aspects of the DIN requirement. In particular, the new law provides the registrar with the ability to:

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give a person a DIN if the person has applied for a DIN and the registrar is satisfied that the person's identity has been established; [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsections 308-5(1) of the CATSI Act and subsection 1272(1) of the Corporations Act]

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direct a director to apply for a DIN (whether or not the director already has a DIN); [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsection 308-10(2) of the CATSI Act and subsection 1272A(2) of the Corporations Act]

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keep a record of each DIN that has been given to a person; [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsection 308-5(2) of the CATSI Act and subsection 1272(2) of the Corporations Act]

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cancel a DIN that has been given to a person if the registrar is no longer satisfied that the person's identity has been established or if the registrar has given the person another DIN; and [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsection 308-5(3) of the CATSI Act and subsection 1272(3) of the Corporations Act]

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notify a person that they have been given a DIN or that a DIN, which has previously been given to them, has been cancelled. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsections 308-5(1) and 308-5(3) of the CATSI Act and subsections 1272(1) and 1272(3) of the Corporations Act]

2.53 The registrar is provided with little or no discretion in the exercise of most of these functions and powers. In particular, the registrar must give a person a DIN if that person is eligible to apply for a DIN and has established their identity to the satisfaction of the registrar. Likewise, the registrar cannot give a person a DIN or cancel a person's DIN without notifying the person.

2.54 The new law also allows the registrar to request a person's tax file number to facilitate the administration of the DIN requirement. ^[68] This will enable the registrar to use a person's tax file number to assist with establishing the person's identity for the purposes of the requirement where the person is willing to provide it. The use of a person's tax file number (when provided) is likely to reduce the time and cost involved in establishing a person's identity to the benefit of both the applicant and the registrar. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 15 and 16, section 202 of the Income Tax Assessment Act 1936 and paragraphs 8WA(1AA)(b) and 8WB(1A)(a) and (b) of the Taxation Administration Act 1953]

2.55 It should be noted that this ability only allows the registrar to request a person's tax file number. The registrar cannot require a person to provide a tax file number. In addition, the current rules limiting the use and disclosure of tax file information contained in the Taxation Administration Act 1953 continue to apply in relation to any such information held by the registrar. This ensures that any tax file information collected can only be used for the purposes of administering the DIN requirement and cannot be disclosed to third persons except in accordance with that taxation law. ^[69]

Who may apply for a DIN?

2.56 The registrar may only give a person a DIN if that person has applied for one. The new law provides for two categories of persons who may apply for a DIN. No other person can apply.

2.57 The first category of persons who may apply for a DIN are directors. As noted above, a director commits an offence if they do not have a DIN and have not applied for one by the prescribed time. In addition, the objective of the regime is to promote good corporate conduct of directors by, among other things, establishing their identity and tracking their directorships over time. It is therefore essential that directors be able to apply for a DIN.

2.58 The second category of persons who may apply for a DIN are persons who are not directors but intend to become directors within 12 months. It is not compulsory or required that such a person apply for a DIN unless they are actually appointed as a director. ^[70] However, the new law enables such persons to obtain a DIN should they so desire. The intent is to facilitate the operation of the new DIN requirement by enabling prospective directors to apply for a DIN where convenient or necessary to do so. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsection 308-10(3) of the CATSI Act and subsection 1272A(3) of the Corporations Act]

2.59 A DIN allocated to a prospective director is automatically cancelled by operation of law if the person does not become a director within 12 months of being given the DIN. This ensures the new requirement remains focused on those that are directors or are likely to become directors. A DIN that is cancelled pursuant to this provision may be reallocated to the same person should they later reapply for a DIN. ^[71] [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, subsection 308-5(4) of the CATSI Act and subsection 1272(4) of the Corporations Act]

How does the registrar perform its functions and exercise its powers?

2.60 The registrar performs its functions and exercises its powers in relation to the DIN requirement primarily in accordance with the data standards. ^[72] As explained in paragraphs 1.30 to 1.38 of this memorandum, the data standards are legislative instruments that the new law allows the registrar to make on matters relating to the performance of the registrar's functions and the exercise of the registrar's powers.

2.61 In the present context, the data standards can provide for matters related to the performance of the registrar's functions and the exercise of the registrar's powers in relation to the DIN requirement. These functions and powers are specified in paragraphs 2.52 to 2.55 of this memorandum. Examples of particular matters related to the DIN requirement that the registrar may deal with in the data standards include: ^[73]

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how a person's identity is to be established for the purposes of the new requirement (for instance, the registrar could require an applicant to provide 100 points of identification);

•

the numbering plan for the new requirement (for instance, the registrar could specify rules relating to the allocation and use of numbers in connection with the new requirement, including rules affecting numbers that have previously been given or cancelled ^[74] );

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how DIN records are to be stored, maintained and integrated or linked to other data;

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how a person is to apply for a DIN and the manner and form of any application;

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how the registrar may check or validate the accuracy of any records held in relation to the new requirement; and

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how the registrar may notify people of relevant matters under the new requirement.

2.62 There is flexibility in the legislation for data standards to include different provisions relating to different functions or powers of the registrar. For example, in setting data standards for the information the registrar needs to collect to be satisfied of a person's identity, there can be different proof of identity requirements for directors of a registered body under the CATSI Act to those that apply to directors of a registered body under the Corporations Act. Likewise, the standards may provide different requirements for establishing the identity of directors that may not have traditional forms of identification to ensure that such directors are not discriminated against or unfairly disadvantaged.

2.63 Other amendments in the Bill enable the registrar to make data standards relating to how the registrar is informed of relevant matters relating to directors that already hold a DIN. For example, existing section 205B of the Corporations Act requires companies to lodge a notice of the personal details of a new director with the registrar within 28 days of their appointment. As under the new law this notice must meet any requirements of the data standards, the registrar may require companies to provide details of any existing DIN held by a new director. An equivalent ability exists in relation to the other types of registered bodies. ^[75] These abilities facilitate the proper functioning of the new requirement by enabling details of any existing DIN held by a newly appointed director to be collected for the purposes of tracking their directorships over time. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 1 to 4, paragraphs 21-1(3)(ea), 22-1(4)(da), 23-1(4)(da) and subsection 304-5(4) of the CATSI Act]

What are the consequences of contravening the new law

2.64 Civil and criminal penalties apply to contraventions of the DIN requirement. The registrar may also issue infringement notices in relation to some contraventions.

Civil and criminal penalties

2.65 A contravention of every obligation in the new law is both a civil penalty provision and an offence. This allows the regulator or prosecutor (as the case may be) to take a proportional approach to the enforcement of the new regime.

2.66 The maximum penalties applicable to each obligation in the Bill are detailed in the following table.

Table 2.1 Penalties concerning obligations

[Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5, 6, 11, 12, and 14, subsections 308-20(1), 308-20(4), 308-20(5), 308-25(1), 308-25(3), 308-25(4), 308-40(1), 308-40(4), 308-45(1) and 308-45(2), and paragraph 386-1(1)(ab), of the CATSI Act and subsections 1272C(1), 1272C(4), 1272C(5), 1272D(1), 1272D(3), 1272D(4), 1272G(1), 1272G(4), 1272H(1), 1272H(2), and section 1317E and schedule 3, of the Corporations Act]

2.67 The penalties applicable to each obligation are broadly consistent with current penalties applicable to comparable provisions in the Corporations Act and the CATSI Act respectively. However, the maximum penalty between the Acts varies for some offences. This reflects current differences in the penalty regime as between the two Acts. Similarly, the current civil penalty regime within the CATSI Act does not provide for pecuniary penalty orders to be made against corporations.

2.68 Breaching either of the first two obligations is an offence of strict liability. The application of strict liability negates the requirement for the regulator or prosecutor (as the case maybe) to prove fault.

2.69 The imposition of strict liability in relation to these obligations is necessary to ensure the integrity of the new DIN requirement which relates to corporate regulation. As already noted, the effectiveness of the new requirement necessitates that all directors have applied for a DIN and therefore that there is strong deterrence for those who may seek to avoid the requirement. For similar reasons, the registrar may issue an infringement notice under the Regulatory Powers (Standard Provisions) Act 2014 in relation to a breach of either obligation.

2.70 Civil penalties also apply to any person who is involved in a contravention of any of the obligations in Table 2.1. Sections 79 of the Corporations Act and 694-55 of the CATSI Act define when a person is involved in a contravention. Those sections provide that a person is so involved if, and only if, the person has aided, abetted, counselled, procured, induced or been knowingly concerned or a party to the contravention, or has conspired with others to effect the contravention.

2.71 The way the law gives effect to penalties varies between the Corporations Act and the CATSI Act. In the case of the Corporations Act, the penalties are given effect to by making the necessary amendments to existing subsection 1317E of the Corporations Act (in relation to civil penalties) and Schedule 3 of the Corporations Act (in relation to criminal penalties). In the case of the CATSI Act, the civil penalty provisions are given effect to by making necessary amendments to existing subsection 386-1 of the Act while criminal penalties are specified in the provisions that create the offence.

2.72 The principles set out in the Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers ^[76] were considered in framing each offence in the new law and in determining applicable penalties.

Infringement notices

2.73 Breaches of the two obligations relating to failing to apply for a DIN (see the first two items in Table 2.1) are also subject to the infringement notice regime in Part 5 of the Regulatory Powers (Standard Provisions) Act 2014. Because these obligations involve timeframes and apply to a large number of people, minor breaches may be expected to occur with some frequency. Infringement notices are an efficient way of dealing with minor breaches, as they avoid the significant delays and costs associated with court action.

2.74 Part 5 of the Regulatory Powers Act sets out a standard framework under which infringement notices can be issued. This includes important matters such as when an infringement notice may be issued and by whom, what matters must be set out in an infringement notice, the maximum penalty ^[77] that can imposed, how an extension of time for payment may be requested, how and under what circumstances an infringement notice may be withdrawn, and the effect and consequences if a person pays the amount stated in the notice.

2.75 In order for the standard framework in the Regulatory Powers Act to operate the new law must set out who can act as an infringement officer and as a chief executive for the purposes of the standard framework. In this respect, the new law provides as follows:

•

an infringement officer is each member of the staff of the registrar who holds, or is acting in, an office or position that is equivalent to an SES employee;

•

the chief executive is the person specified as the relevant chief executive in the registrar's instrument of appointment under the new law; or if there is no person specified-the registrar.

2.76 The new law makes one modification to the standard framework for issuing infringement notices under Part 5 of the Regulatory Powers Act. The effect of this modification is that an infringement notice issued in relation to an alleged contravention of the new law does not need to give details of the place of the alleged contravention (as would otherwise be required under paragraph 104(1)(e)(iii) of the Regulatory Powers Act). The 'place' of the alleged contravention is not relevant in the context of the present obligations which relate to failing to apply for a DIN and would not further a recipient's understanding of the alleged contravention to which an infringement notice relates. In addition, the requirement to specify the place of the alleged contravention may be difficult and unduly burdensome in the context of the relevant contraventions as the information may not be obtainable or it may be unclear where the alleged contravention took place. ^[78] All other requirements of the standard infringement notice regime in Part 5 of the Regulatory Powers Act apply unmodified, including the requirements aimed at ensuring a recipient of an infringement notice understands the alleged contravention to which the notice relates. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 5 and 11, sections 308-35 of the CATSI Act and section 1272F of the Corporations Act]

Consequential amendments

2.77 Definitions are inserted into sections 9 of the Corporations Act and 700-1 of the CATSI Act, which are the main definitions section of those Acts. ^[79] The definitions support the operation and readability of the new law. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures Bill, items 7, 8 and 10, sections 694-120 and 700-1 of the CATSI Act and section 9 of the Corporations Act]

Commencement, application and transitional provisions

Commencement

2.78 The new requirement commences on a date set by proclamation. This mechanism is used so that a commencement date can be set when administrative arrangements supporting the new regime are in place. These arrangements include the use of a new information technology platform and the development of systems and process to support the new requirement's operation. However, if any provisions do not commence within 24 months of the Bills receiving Royal Assent, they automatically commence the day after the end of that period. Automatic commencement after a designated period is a standard feature of provisions that provide for commencement by proclamation. Automatic commencement ensures that laws do not sit dormant on the statute books indefinitely. [Section 2 of the of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019]

Application

2.79 Each function and power in the new law does not apply until the function or power is assigned to the registrar. This means that the DIN requirement will not apply until the day (the application day) the Minister appoints a registrar to administer the new requirement. ^[80] [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 9 and 13, subitem 5(1) of the Bill and subsection 1653(1) of the Corporations Act]

Transitional arrangements

2.80 The new law provides that a person who is a director immediately before the application day must apply for a DIN within a period specified by a legislative instrument made by the Minister. ^[81] Until this period is specified, there is no requirement on such directors to apply for a DIN. Without this transitional rule, a person who is a director when the new requirement starts may be placed in a position where they are unable to comply with the new law because it would require them to have applied for a DIN at some time in the past, namely within 28 days ^[82] of being appointed as a director. This transitional period will also provide time for existing directors to become familiar with the new requirement and for any information or awareness campaigns in relation to it to take effect. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 9 and 13, subitems 5(2) and 5(3) of the Bill and subsections 1653(2) and 1653(3) of the Corporations Act]

2.81 In addition, the new law provides a person who is appointed a director within the first 12 months of the new regime's operation with an additional 28 days to apply for a DIN. After this transitional period ends, the standard rule applies, that is, a director must apply for a DIN prior to being appointed as a director or within any later period as may be allowed by the regulations or the registrar (see paragraphs 2.35 to 2.36 of this memorandum). This transitional period is designed to provide time for new directors to become familiar with the new requirement and for any information or awareness campaigns in relation to it to take effect. [Schedule 2 of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, items 9 and 13, subitem 5(4) of the Bill and subsection 1653(4) of the Corporations Act]