Director identification numbers are coming…sometime

Director identification numbers (DINs) have been on the cards for some time in New Zealand and other countries around the world.

The Ministry of Business, Innovation and Employment (MBIE) consulted on the introduction of DINs in 2017 and 2018 noting the following benefits:

• they would provide an accurate way to distinguish between directors with similar names and identify which company directorships a person holds
• they would make it easier for creditors and others doing business with a company to track a director
• they would help government agencies to identify and locate directors with obligations under their legislation and inform proactive enforcement activities
• they would help increase the accuracy of the Register, for example, by assisting the Companies Office to identify people who are disqualified from being a director and helping other agencies identify cases for referral to the Companies Office for investigation
• it would be quicker for directors of multiple companies to update their details on the Register as they would only have to update one record
• introducing an identity verification process should provide greater certainty about a director’s identity and reduce the possibility of someone using a fake identity.

The IoD supported DINs and also removing directors’ residential addresses from the public register and substituting them with a service address. However, progress has been slow and these matters have now been combined with another initiative aimed at increasing the transparency of beneficial owners of companies and limited partnerships (eg via a public register) as a measure to combat money laundering and terrorist financing. A ‘beneficial owner’ essentially means a natural person who ultimately owns or exercises effective control over a corporate entity (as distinct from the legal owner of the entity which may be another entity for example). See MBIE’s discussion document on beneficial ownership for more information.

MBIE is now working on how this will all operate in practice and stakeholder consultation is expected.

Australia is one step ahead

Directors of companies registered under the Australian Corporations Act 2001 will soon be required to obtain a DIN*. This will apply to New Zealanders who are also directors of Australian companies or foreign companies registered in Australia.

Earlier this year the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (the Act) passed into law setting out a framework for DINs. However, much of the operational detail is still to come. The Act provides that DINs will be in effect by June 2022, but there is scope for DINs to be introduced earlier.

Under the regime, directors will be required to prove their identity and will then be issued with a unique number for life (even if they cease to be a director in the future).

Obligations under the Act

The new law imposes four obligations in relation to DINs:

• a new director must apply for a DIN before being appointed as a director
• an existing director must apply for a DIN within a prescribed period of being directed to do so by the Registrar
• a person must not knowingly apply for multiple DINs and
• a person must not misrepresent a DIN to a government body or registered body.

Registrar powers

The Registrar has the power to administer the requirements under the Act including issuing DINs, keeping records, determining how directors will establish their identity and making data standards (which will cover operational/administrative matters).

Civil and criminal penalties

Failure to apply for a DIN can result in civil and criminal penalties for directors or infringement notices. Civil and criminal penalties also apply for conduct that undermines the integrity of DINs such as providing a false DIN or providing false identity information to the Registrar.

For more see information, see MinterEllison’s article Centralised business registers and DINs are on the way

*Directors of companies registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 will also be required to register for a DIN.

Director identification changes in the United Kingdom

The UK doesn’t have identification numbers for directors. However, the UK government signalled this month a number of changes to the companies register that are relevant to directors including:

• introducing compulsory identity verification for all directors and people with significant control (beneficial owners) of UK registered companies. This verification is being introduced to help trace people who are committing fraud or money laundering
• removing restrictions to enable personal information to be taken off the public register (such as signatures, and residential addresses). It is noted that directors in the UK can provide a service address for the public register rather than a residential address.

The UK government will continue to consult with stakeholders while developing operational policy and will provide guidance for directors. For more, see the government’s report Corporate Transparency and Register Reform.

We will continue to update members on director identification developments in New Zealand and overseas.