New laws affect when a director’s resignation takes effect and prohibit resignations that leave a company with no remaining directors.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (the Act) was enacted in February 2020 to help combat illegal phoenix activity. The Act makes company directors personally liable for their company’s GST liabilities in certain circumstances and introduces penalties for disposing the company’s property for less than market value in an attempt to disadvantage creditors.
From 18 February 2021, the Act also prohibits a company director from improperly backdating their resignation or ceasing to be a director when this would leave a company with no directors.
Previously, a director could resign simply by giving notice to the company. The company was then required to notify ASIC of the director’s resignation within 28 days or pay a late fee. The company was expected to notify ASIC of the resignation using Form 484 Change to company details via ASIC’s online services, but the effective date of the resignation was not dependent on the company notifying ASIC of the change.
Under the new law, where ASIC is not notified of a resignation within 28 days, the effective date of the resignation will be when ASIC is actually notified.
For example, a director resigns on 1 April 2021 and neither the company nor the director notifies ASIC of the resignation until 1 December 2021. ASIC will record the director’s resignation date on the corporate register as 1 December 2021, as notification occurred more than 28 days after the purported date the person stopped being a director. As a consequence, for the purpose of the Corporations Act 2001 the person is taken to be still a director during that intervening period.
To correct the earlier date, the company or director will have to apply to ASIC or the court. An application to ASIC to correct a resignation date has to be made within 56 days of the claimed resignation date. After that time, applications to the court generally need to be made within 12 months of the claimed resignation date.
The Act also prohibits companies from removing the last remaining director on ASIC records, thereby leaving a company with no directors. ASIC will reject submissions of Form 484 or Form 370 Notification by officeholder of resignation or retirement that cease the last appointed director without replacing that person.
What this means
Under the new law, a person is still a director of the company, with all the attaching obligations under the Corporations Act 2001, until ASIC is notified of the resignation.
A resigning director should strongly consider preparing and lodging ASIC Form 370 Notification by officeholder of resignation or retirement in order to ensure that their resignation has taken effect at the appropriate date, rather than relying on the company to notify ASIC. There is no fee for lodging a Form 370.
Impact on directors of registered charities
A company incorporated under the Corporations Act 2001 that is also a registered with the Australian Charities and Not-for-Profit Commission (ACNC) has certain obligations under the Corporations Act 2001 ‘turned off’, including certain financial reporting obligations. However, other obligations and offences for breaches of certain directors' duties under the Corporations Act 2001 continue to apply. For example, section 184 of the Corporations Act 2001 still applies to the directors and other officers of companies that are charities registered with the ACNC; directors continue to have a duty to prevent insolvent trading under section 588G; and they must comply with the whistleblower protection regime in Part 9.4AAA.
If a director of a company limited by guarantee which is registered with ACNC resigns, neither the director nor the company are required to advise ASIC of that change. Rather, the company is only required to notify the ACNC of the resignation of the director. Nevertheless, the company and resigning director can choose to separately notify ASIC of the change in office holder using ASIC Forms 484 and 370, respectively.
What this means
A director resigning from a company that is registered with the ACNC should strongly consider preparing and lodging ASIC Form 370 Notification by officeholder of resignation or retirement in order to ensure that their director’s obligations under the Corporations Act 2001 cease at the appropriate date. There is no fee for lodging a Form 370.
If you have any questions, or would like any information on what these changes mean for you, please contact your Nexia Advisor.
