Implications for directors resigning from 18 February 2021

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Last year, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Phoenixing Act) was enacted to target illegal phoenix activities, where directors create a new company to continue the business of an existing insolvent company to escape paying outstanding debts.  The Phoenixing Act introduces several amendments to the Corporations Act 2001 (Cth) (Corporations Act).  The changes introduced by the Phoenixing Act mainly seeks to prevent directors from improperly backdating resignations or resigning leaving a company without any directors.

Resignation date

From 18 February 2021, the newly commenced section 203AA of the Corporations Act provides that a resignation of a director will now take effect:

• If, within 28 days after the day the person stopped being a director of the company, ASIC is notified of that fact, the day the person stopped being a director of the company; or
• In any other case – the day written notice is lodged with ASIC stating that the person has stopped being a director of the company.

Therefore if the director’s resignation is notified to Australian Securities and Investments Commission (ASIC) after twenty-eight (28) days of the day the person stopped being a director, the resignation date will be taken to be the date that the written notice is lodged with ASIC.

Under section 203AA(5) of the Corporations Act, It should be noted that a person may apply to ASIC or a Court to fix a different resignation day.  The power to alter a resignation date is discretionary, must be made within a limited timeframe, and any decision is to be determined by a case-to-case basis.

Last director standing

Under section 203AB of the Corporations Act, a director’s resignation will not take effect if the resignation will leave the company with no directors on ASIC records, unless a company is being wound up or other general exceptions such as death of the last director, or where the person did not consent to act as director.

ASIC will now reject the lodgement of Form 484 ‘Change to company details’ or Form 370 ‘Notification by officeholder of resignation or retirement’, where the result would be that the last appointed director ceases their appointment without another director replacing that appointment.

This change is aimed to prevent directors ‘abandoning the ship’ before the company becoming liquidated or otherwise involving in certain wrongdoing.  It will still be applicable regardless of the number of directors resign – therefore if all directors resign on the same day, their resignations will be unsuccessful unless there is one remaining director.

In practice, where internal disputes arise within the company, directors should be mindful of being the ‘last director standing’ and having to be responsible for the former directors’ actions.

With the changes carrying out, it is particularly essential that all directors are fully aware of their obligations and potential liabilities as a director and the timing and circumstances in which they can resign from their position.

Links and further references

Legislation

Corporations Act 2001 (Cth)

Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020

Further information about the changes to the Corporations Act

If you need advice on how the changes to the Corporations Act may affect you and your company, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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