What is the Executive Tracking System? – Corporate/commercial law

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This article was updated in November 2021, see here.

A corporate director is responsible for managing the business affairs of the corporation he has appointed and has various fiduciary duties to the corporation. To modernize Australian business registers, the Australian government introduced a new system for tracking company directors, the Director Identification Number (DIN). Once the Australian Taxation Office (ATO) confirms a person’s identity, they will receive a unique DIN. Administrators keep this number permanently. A director may use this number in several companies for each directorship he holds.

DIN has received strong support from the Australian Securities and Investments Commission (ASICs). They believe this will greatly benefit regulators and individuals doing business. This will help improve security and modernize the collection of administrator information. This article explains how the corporate director tracking system works in Australia.

Why is DIN introduced?

Directors play a crucial role in ensuring companies are run lawfully and do not engage in behavior that will harm the Australian economy.

The illegal phoenix has become a widespread problem in the Australian insolvency space. Phoenix describes the situation where a business disappears and the same group of people start another business in its place. A typical reason for doing so is usually that the old company is in financial trouble. To do this, the directors transfer all of the company’s assets to a new company for a minimum consideration. Ultimately, they perpetuate the old society through the new society.

Additionally, illegal phoenixing activity was a significant issue in the 2015 inquiry into insolvency in the Australian construction industry by the Senate Economics Reference Committee. To deter and punish illegal phoenixing, the government announced a set of reforms in 2017. One of these reforms is the DIN regime.

Current legislation and technology do not provide for the identification of directors, noting the following:

  • ASIC does not verify the identity of administrators and they take the information at face value;
  • administrators can have multiple records in ASIC systems. For example, an administrator may have several unrelated records with slight variations in their name, address, and personal information;
  • the transparency of relations between directors and several companies is limited; and
  • there is little interaction between ASIC and individual administrators.

DINs aim to reduce illegal phoenix activity by ensuring that the ATO can properly trace directors between organizations.

The introduction of DINs should also promote good governance and significantly improve data security.

Every director will need a DIN

The DIN regime is expected to be fully operational by 2022.

The intention is that a new body called the Commonwealth Business Registrar will be created and administered by the ATO. This will be the body responsible for verifying the identity of the administrators and administering the DIN plan. As of May 2021, the government had yet to appoint a Registrar or detail the identification documents directors had to submit to obtain a DIN.

Once the DIN requirements come into effect, all administrators will need a DIN. The DIN regime will commence with a transition period applying from the date the Commonwealth Business Register is established (or such other date as may be required by regulation), with the following conditions applying:

  • current administrators will have to apply for a DIN within the time limit prescribed by the Registrar (as of May 2021, Parliament did not prescribe this time limit); and
  • new directors appointed during the 12-month transition period must submit their candidacy within 28 days of their appointment.

After the expiration of the 12-month transitional application period, new directors must register for a DIN before being appointed or within any later time period provided by the Registrar or the regulations.

All Directors, Acting Alternate Directors and Board Members of “Registered Organizations” will need a DIN. Registered bodies include Australian companies and bodies registered under the Companies Act.

Compliance with the DIN regime

Administrators must comply with DIN requirements once the plan is in effect. There will be significant civil and criminal penalties for directors who fail to comply. If a director of an organization registered under the Corporations Act fails to apply for a DIN within the applicable timeframe, they could face significant civil penalties.

Other significant civil and criminal penalties are associated with actions that undermine the DIN regime, such as providing false identity documents.

Current and future directors will need to consider these new penalties. If you are an administrator, be sure to keep up to date with new DIN laws to ensure you get a DIN when required.

Key points to remember

The introduction of the DIN scheme will provide greater transparency and security for administrators and those who interact with companies. As part of this:

  • there will be increased confidence in the company’s register and the accuracy of the company’s register;
  • administrator and company data will be stored together, increasing data accuracy and usefulness;
  • The ASIC will identify the companies a director is linked to and changes in leadership over time, increasing transparency; and
  • there will be flexibility and an integrated user experience with both authorized administrators and companies able to interact with the online registrar in a more modern system.

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