This case serves as reminder of the importance of good record-keeping and timely lodgement of ASIC notifications in connection with the removal of a director, as well as clear communication with the director that he or she has been removed. A director who has been removed from office may still bind a company where he or she has not been informed of their removal, the appointment is supported by ASIC records and the company continues to hold him or her out as a director.
The relevant factual background to this case was as follows:
- on the evening of 16 June 2017, Mr Lee appointed Mr Hogan and Mr Sprowles as administrators of Sydney Project Group Pty Ltd and S.E.T. Services Pty Ltd (the Companies) based on his opinion that the Companies were insolvent or likely to become insolvent;
- at the time of their appointment, Mr Hogan and Mr Sprowles believed that Mr Lee was the sole director of the Companies and this was confirmed by ASIC searches obtained by them both before and following their appointment;
- Mr Mehajer (the sole shareholder of the Companies) later claimed to have convened a meeting on the morning on 16 June 2017 and, in his capacity as sole shareholder, resolved to remove Mr Lee as director and appoint his sister in his place;
- Forms 484 notifying ASIC of the change in director were not lodged until 18 June 2017; and
- Mr Hogan and Mr Sprowles first became aware that Mr Lee had purportedly been removed as director of the Companies when they were provided with updated ASIC searches on 19 June 2017 which showed the change.
In making an order under section 447C of the Corporations Act 2001 (Cth) (Act) confirming the validity of the appointment of Mr Hogan and Mr Sprowles as administrators of the Companies, Robb J found that:
- there was not sufficient evidence to conclude that the meeting to remove Mr Lee in fact took place before the appointment of Mr Hogan and Mr Sprowles; and
- Mr Mehajer did not inform Mr Lee that he had been removed as director and in fact continued to correspond with Mr Lee as if he was a director (Mr Mehajer gave evidence that he did not believe that the removal would be official until ASIC was notified).
Robb J also held that because ASIC’s records showed Mr Lee as sole director at the time of their appointment, Mr Hogan and Mr Sprowles were entitled to assume, pursuant to sections 128(1) and 129 of the Act, that Mr Lee was a duly appointed director of each of the Companies. Robb J further held that Mr Merhajer’s belief that Mr Lee would remain a director until ASIC was notified meant that Mr Lee and the Companies positively held out Mr Lee as continuing to be the sole director.