Rules tighten for business director resignations
February 25, 2021
The process of resigning as a director of a business has now changed, following the adoption of new federal laws last year.
The change aims to combat phoenix activity, known as the stripping and transferring of company assets to avoid paying outstanding debts, which is estimated to cost the Australian economy up about $5 billion a year.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 prohibits backdated resignations or leaving a company without a director.
The Australian Securities and Investments Commission (ASIC) has now tightened its director resignation rules to ensure timely notification is adhered to.
Timely notification of resignations
Under the Corporations Act, a company is required to notify ASIC of the effective date of a director resignation within 28 days – with late notification resulting in a fine.
Until now, however, there was no limit on late notification as long as the fine was paid.
ASIC’s new rules state a resignation notification backdated more than 28 days won’t be accepted but will instead be recorded as effective on the date of lodgement with ASIC.
A director or company may apply to the court, in the event of a late notification, to set the effective date of the director’s resignation as the day that the director actually resigned, rather than the date that ASIC was notified.
Last director resignation
Under ASIC’s new regulations a company director won’t be allowed to stand down until a new one is appointed to replace them.
Until now, ASIC would record the resignation of the last remaining director, so potentially a company could be left without directors – despite the Corporations Act 2001 requiring all companies have at least one director in Australia.
So, unless a company is being wound up, directors will also no longer be able to resign if they are the last remaining director on ASIC records, leaving a company with no directors.
Submissions using Form 484 Change to company details or Form 370 Notification by the office holder of resignation or retirement for the last appointed director, without a replacement, will be rejected.
Changes to director resignations at a glance
In summary, these are the key factors you need to know about regarding the changes to director resignations:
- When an office holder resigns from (or is removed from) a company, ASIC should be notified within 28 days. Often this is done by the company accountants or lawyers.
- Failure to notify on time could result in consequences for the office holder – a director being deemed personally liable for matters arising after the date of their actual resignation, for example.
- To fix the resignation date to a date earlier than 28 days, applications must be made to ASIC or the court. A fee applies.
- In the event of late notification, applications to ASIC must be made within 56 days in proscribed form or to court within 12 months after the resignation.
- The last director resignation has no effect.
Need help with these changes?
If you need help navigating the changes to director resignations and how it may impact your business from an accounting and business advisory perspective, LDB is here to help.
With a broad range of accounting, finance and business expertise under one roof, LDB’s expert team is ready to help you and your business.
To get in touch, call (03) 9875 2900 or send us a note via the contact form below.