Significant changes have been introduced for company directors when resigning their position. From 18 February 2021, new rules exist regarding the ‘effective date’ of resignations that are not notified to ASIC on time, and the resignations of last remaining directors. These changes are part of ASIC’s continued push to eliminate illegal phoenixing activities.
The Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020 (Cth) has introduced new regulations regarding the process and timing of director resignations and the resignation of last remaining directors, as well as granting additional powers to ASIC and liquidators. The provisions are part of the aim to prevent companies from liquidating, winding up or being abandoned in order to avoid paying their debts and directors must consider these new laws when planning to resign their position.
Changes to the ‘effective date’ of a director’s resignation if notified late
If a director’s resignation is notified to ASIC more than 28 days after the resignation date, ASIC will now impose an ‘effective date’ of resignation as the date ASIC receives the notice. For example, if a director resigns on 1 March but does not notify ASIC until 1 June (i.e. more than 28 days after the resignation occurred), the ‘effective date’ of the resignation will be deemed to be 1 June. Late lodgment fees would also still apply.
This new rule has significant practical ramifications, as the director:
• will still be responsible for their duties as a company director until the later ‘effective date’; and
• may remain liable for conduct that occurs after the date they thought they had resigned.
Previously, ASIC would allow resignations of company directors to be ‘backdated’, but this is no longer the case.
Resignation of last remaining directors
Under the new rules, any notices to ASIC that resign the last appointed director without replacing that appointment will be rejected. This is to ensure that:
• companies are not left without any directors; and
• directors cannot seek to avoid responsibilities to creditors and other interested parties.
Similarly, a director may not be removed by a member’s resolution if doing so would leave the company without a director – such a resolution is void.
Limited exceptions to this rule exist, including if the last director is deceased, the company is being wound up and if the director never consented to their appointment.
These changes are significant and, in addition to stopping director resignations in the context of phoenixing activities, will also apply to administrative oversights and inadvertent mistakes by companies.
Accordingly, if you are a director and you resign your position, we recommend that:
• you ensure that the company notifies ASIC (via an ASIC Form 484) within the 28 day period, and request evidence of this; or
• alternatively, you can choose to notify ASIC of the resignation or removal from the company yourself (via an ASIC Form 370).