According to legislative changes that have recently come into effect, if a person resigns from their role as director of a company, they must now ensure that the Australian Securities and Investments Commission (“ASIC”) is notified of their resignation within 28 days of the resignation occurring. Failure to do so may result in the artificial extension of a director’s role, including associated liabilities, beyond the date when they ‘resigned’.
These changes to the Corporations Act 2001 (Cth), brought about by the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (“Amendment Act”) now place obligations and restrictions on director resignations.
The Amendment Act was introduced to help combat illegal phoenixing. Phoenixing is the process of restructuring an old business into a new entity. Illegal phoenixing can occur in circumstances such as when the old business’s assets are transferred below market rate or where the assets are transferred to a new entity and the liabilities remain with the old business, thereby giving the new business an unfair advantage. For more information on phoenixing, both legal and illegal, please see our article here.
From 18 February 2021 the effective date of a director’s resignation will be:
In addition, if a director’s resignation will leave the company without at least one director then that resignation will not take effect. A similar restriction is also in place for any resolution by members that removes a director where that removal would leave the company without at least one director at the end of the day. Exceptions for these restrictions apply where:
If ASIC receives the Resignation Notice more than 28 days from the date of resignation (meaning the effective date of the resignation is the date ASIC received the notice, not the date that the person stopped being a director) then that person may apply to ASIC or the Court to have the effective date amended to the date the person stopped being a director. This application must be made:
When considering whether to amend the date of resignation, the Court will only do so if it is satisfied that it is just and equitable. For ASIC, it must have regard to any conduct, act, omission or representation in relation to the Resignation Notice and the reasons for any delay. Needless to say, it is preferable to ensure that ASIC receives notification of any director resignation within the 28 day time limit to avoid having to make an application to ASIC or the Court.
Although targeted at preventing illegal phoenixing and increasing the accountability of directors by limiting misconduct and the backdating of resignations, the changes apply to all directors and companies. Failure to notify ASIC of a director’s resignation within the required 28 day period may mean that the director remains in that position until ASIC is notified, resulting in their liability as director also being extended.
To ensure that a director’s obligations with respect to the company cease on the intended date, it is important that ASIC is notified of the resignation within 28 days of it occurring. Practically this means that companies should ensure they have sufficient processes in place to notify ASIC within the time frame. Outgoing directors should also be mindful of the 28 day period and either ensure that their former company lodges the notice or consider personally lodging a Notification of Officeholder Resignation form to ensure ASIC is notified in accordance with the legislation.
Directors of small companies should also be aware that their resignations will not be accepted if it leaves the company without a director, except for circumstances where the company is winding up. Viable options should therefore be found prior to any sole director resigning, such as adding an additional director to the company or ensuring a replacement director is immediately prepared to step into the vacancy.
In addition to the changes discussed in this article, further changes are expected to come into force in 2021 to assist in tackling anti-phoenixing. The anticipated introduction of the Director Identification Number (“DIN”) will require directors to have a single identifying number, including if they move to a different company. For more information please see our article discussing the DIN here.
If you require assistance with director’s duties or corporate structure, the experienced team at Coulter Legal are able to advise and guide you through the process. Mindful of the time requirements, it is always best to act and seek advice if you are unsure of your position.
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