Advisers should warn clients about potential liability in new DIN law
Business advisers should warn clients establishing new companies of potential liability in failure to meet requirements of the Director Identification Number (DIN) regime, effective from the 5th of next month.
From that date all directors must apply for a DIN before appointment. No longer, as has been the case since June last year, will new directors be allowed up to 28 days to apply for a DIN after appointment, and existing directors appointed before 31 October last year must have applied for a DIN before 30 November this year.
Last June law was passed requiring all directors of a company in Australia including SMSF members who are directors of a corporate trustee, to have a DIN, so that advisers who have clients setting up new corporations should update their procedures to ensure no directors find themselves facing substantial penalties because they’ve inadvertently or otherwise failed to comply with the regime’s updated requirements.
Macks Advisory is informed that an adviser who registers a company for a new director, and that director hasn’t applied for a DIN as required by the updated law, has committed an offence.
Advisers who don’t keep a sharp eye on clients who are establishing new companies could be risking their own financial futures in various ways.
Advice for advisers
To protect themselves against a claim they may not be functioning with due diligence, advisers should email clients reminding them of their obligations 20 days, 15 days, or 10days before company registrations, particularly where DIN deadlines are involved.
Where a client indicates a deadline has been met, that open task can be closed.
If a client doesn’t respond satisfactorily to such an email, then further action may be necessary – including confirmation by the adviser of what needs to be done before a DIN deadline, perhaps also with a warning of penalties that could apply for failure to meet it.
Sources tell us these follow-up actions could help show an adviser has been diligent and has operated with reasonable care. Conversely, advisers who don’t apply these procedures could run the risk of being accused by clients of uncaring behaviour.
This could result in both liability and consequent loss of money, and further financial loss because of the loss of clients.
The choice for advisers
Advisers whose services include registering companies for clients, but elect to leave it to clients to make sure they’ve met all requirements of the DIN regime, quite apart from demonstrating poor risk management, are also inviting possible personal disaster.
For they may encounter among these clients a vexatious litigant who having been penalised under DIN law for not meeting its requirements, may then seek to vent their spleen by launching legal action against their adviser.
It’s our belief – and if you’re a business adviser you may care to get a lawyer’s confirmation of this – that you can avoid a fearsome catalogue of risks if you insist every client who wants to be a director, must apply for a DIN before you will assist them in registering a company.
Do this and you will not only eliminate the above risks and hazards with 100% certainty, but also save valuable time and resources while avoiding the angst of having to chase up procrastinating clients.
Advisers’ obligation
Advisers should get the written consent of each officer holder of a new company before registering it – as required under section 201D of the Corporations Act 2001.
Advisers who don’t do this are committing a liability offence, and yet we are informed many advisers are registering companies and then asking clients to sign documents.
It is essential advisers understand they need first to ensure they have written and signed consent from each office holder – and shareholder – to register a new company, and that each director and alternate director has a registered DIN prior to the company’ registration.
Failure to do this could ruin an adviser’s career. Not only could there be the stigma of committing an offence and suffering the consequences of liability, but also the likelihood of permanently destroying the relationship with a client, and because of all that having, in future, difficulty in signing up new clients.
Pressure on advisers
Rarely have business advisers been under greater pressure. According to the Australian Bureau of Statistics (ABS) the pandemic is spawning an extraordinary number of new businesses requiring the registration of new companies.
ABS data shows that last year there were almost 483,000 businesses launched, compared to about 400,000 or less during each of the previous five years – and there seems to be no diminution in this rate of increase since last year.
A National Australia Bank (NAB) survey released last month showed that given the chance, more than four in 10 Australians would like to own their own business.
The bank’s head of behavioural and industry economics Dean Pearson says there has always been “a degree of latent entrepreneurship among Australians, but it appears Covid-19 has increased it”.
There is strong anecdotal evidence that while the pandemic is causing the demise of some firms it is presenting opportunities to others “as part of a broader aspect of people now looking at their life, assessing it, and desiring change”.
