Advisers warned on liability risks with director ID process

In June last year, the government passed laws introducing the requirement for all directors of a company in Australia to have a director identification number (DIN), including SMSF members who are directors of a corporate trustee.

There is currently a transitional period in place wherein all new directors have 28 days to apply for a DIN after being appointed as a director. From 5 April 2022, however, all directors will need to apply for a DIN prior to being appointed as a director.

Existing directors who were appointed prior to 31 October last year will need to apply for a DIN before 30 November 2022.

In a recent article, DBA Lawyers director Daniel Butler and lawyer Zacharia Galloway explained that advisers should now be carefully considering and revising their procedures when establishing new companies.

“While a new director currently has 28 days to apply for a DIN in the transition period leading up to 5 April 2022, the failure to obtain a DIN within the 28-day deadline is a strict liability offence,” said Mr Butler.

“An adviser who registers a company for a new director and that director does not apply for their DIN in time commits an offence. This leaves an adviser open to risk unless they follow up their clients to ensure they apply in a timely fashion.”

The best practice for advisers, therefore, is to change past practices and insist on each new director obtaining a director identification number prior to registering any new company for them, Mr Butler explained.

Advisers who register a company without insisting on a DIN upfront, he said, should have follow-up procedures to ensure their clients apply for a DIN prior to each 28-day deadline.

“For example, email reminders could be sent in 10 days, 15 days, 20 days and 24 days of each company registration to ensure the 28-day deadline is satisfied,” he said.

“If the client has applied within one of these timeframes, then that ‘open’ task can be closed. If the client does not respond or has not obtained a DIN prior to day 24, then further action may be needed including confirming what must be done by the deadline and warning the client of the penalties that may apply if a DIN is not applied for before that deadline.”

These actions, he said, would help show that the adviser has been diligent with follow-up and exercised reasonable care.

“An adviser who provides a service of registering companies and expects directors to apply for a DIN within the 28-day deadline without managing this risk is open to liability,” Mr Butler cautioned.

“Their client relationship may also be adversely impacted if the client is subject to a penalty for a strict liability offence.”

While advisers can seek to put the onus on each director to take care of their own DIN, Mr Butler said that even if the adviser has clearly notified the client in writing that this responsibility rests with them, there is always the chance of a vexatious litigant.

“If an adviser insists on each person, who wants to be appointed as a director, applying for a DIN prior to a company being registered, then this eliminates the above risks and hassles and provides 100 per cent certainty,” he said.

“The adviser can then register the company without risk and is likely to save valuable time, resources and sleep that may otherwise be expended chasing up ‘tardy’ clients.”

Mr Butler also reminded advisers that written consent of each officeholder and shareholder of a new company needs to be obtained prior to registering the company as required under s 201D of the Corporations Act 2001.

“Failure to obtain this consent is also a strict liability offence. Despite this fact, there are many advisers register a company and then ask their clients to sign the documents,” he warned.

Advisers, he said, should, therefore, first ensure that signed written consent of each officeholder and shareholder of a new company is obtained and that each director and alternate director has provided their DIN prior to the registration of the company.

“This procedure should result in overall efficiency and reduce risk. Advisers who register a company without doing so may be subject to strict liability offences and risking their client relationships,” he cautioned.