Resigning as director – when is it effective?

On 18 February 2021, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Treasury Act) came into effect and introduced various measures to combat “phoenixing”.  One of the reasons for this legislation was to help combat illegal phoenix activity which involves the creation of a new company to continue the business of an existing company that has been deliberately liquidated in order to evade various forms of tax.

One of the changes introduced was to amend section 203A of the Corporations Act 2001 (Cth) (Corporations Act), which deals with the requirements for directors resignation, by introducing section 203AA.  This article will compare the old requirements set out in section 203A with the new requirements provided in section 203AA and discuss the implications of the changes.

What is required for a director of a company to resign?

How a director resigns depends on how the company is governed.  For example, a company may have its own constitution which provides how a director may resign.  A company may also choose to be governed by the Replaceable rules under the Corporations Act if it does not have a constitution or it may be governed by a combination of both a constitution and the replaceable rules.  According to provision 10 of the tabled replaceable rules, section 203A  of the Corporations Act applies to the resignation of directors.

When was a director’s resignation effective previously?

Section 203A of the Corporations Act provided that:

“A director of a company may resign as a director of the company by giving a written notice of resignation to the company at its registered office.”

It is necessary to determine what constitutes a ‘written notice’ as this may be open to broad interpretation. The inclusion of the word ‘may’ may also warrant further discussion as it indicates more flexibility regarding directors’ resignations.  In the case of Cain v Aeromarine Consulting Pty Limited [2003] FCA 1016 , the Federal court was tasked with deciding whether a director had resigned from a company by giving oral notice.  In this instance, the court ruled that oral resignation was a valid form of resignation as long as such resignation is accepted by the company.

When is a director’s resignation effective now?

Section 203AA of the Corporations Act now provides:

“When resignation takes effect

  (1)  A person’s resignation as a director of a company takes effect on:

 (a)         if, within 28 days after the day the person stopped being a director of the company, ASIC is notified of that fact under subsection 205A(1) or 205B(5)–the day the person stopped being a director of the company; or

 (b)        in any other case–the day written notice is lodged with ASIC stating that the person has stopped being a director of the company.“

Are there any changes required by ASIC?

ASIC must be notified of the resignation by the completion and lodgement of the appropriate ASIC form.  A Form 484 may be lodged by the company or a Form 370 may be lodged by the director personally.  It is also important to note that if the resignation of a director will leave the company without at least one director, such resignation will not take effect unless the company is being wound up.

What are the implications of non-compliance?

Simply put, a Director’s resignation will not take effect unless ASIC are notified within 28 days.  This means that the risks and responsibilities associated with being a director will still be active such as, insolvent trading.  To remedy a resignation date that is more than 28 days old but is less than 56 days old, an application may be made to ASIC within 56 days from the claimed resignation date and submit reasons for such using a Form 502.  Fees will apply.  If the application is accepted by ASIC, the resignation date will be deemed the date claimed in the application.

Takeaways

It is important that when a person resigns as a Director, that the correct procedure is followed to ensure their resignation is effective.  Otherwise, a Director may remain personally liable for various obligations and liabilities whilst under the impression that they no longer hold a directorship.

Links and further references

Legislation

Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth)

Corporations Act 2001 (Cth)

Cases

Cain v Aeromarine Consulting Pty Limited [2003] FCA 1016

Further information about resigning as a director

If you need advice on how to resign as a director, 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.

---

Related insights about resigning as a director