Changes to Director Resignation Laws

February 2021 | Scott Freidman 

The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) have introduced new provisions regarding director resignations effective as of 18^th February 2021. These amendments further protect creditors and employees from directors engaging in illegal phoenix activities and backdating resignation dates.

Illegal phoenix activity is when directors transfer company assets to another company for less than market value in attempt to avoid paying off debt and creditor entitlements when a company is liquidated or wound up. The new regulations ensure that directors do not escape liability of illegal phoenixing activity by backdating resignation dates and protects the company from being left without an acting director. This can be referred to as the end of day test which requires a replacement director to be appointed by the end of day of the director’s resignation becoming effective. This can be seen in the following sections of the Corporations Act 2001(Cth):

S 203AB: This section prohibits a director from resigning if it would leave the company without a director. Notably, a replacement director can be appointed as late as the end of day of the resignation being effective.

Multiple Director Resignation: All resignations of directors will be rejected if it would leave the company without a director. However, the end of day rule also applies.

S 203CA: A director cannot be removed by resolution if it would leave the company without a director.

Exception: If the company is being wound up then S 203CA will not be applicable.

How can you notify ASIC of Director Resignations?

ASIC Form 484: If you lodge this form within 28 days of change then the resignation will become effective. However, if you exceed the 28 day period then the resignation may be delayed until date of lodgement to ASIC.

ASIC Form 370: This form allows a director to provide written notice of their retirement or resignation. Directors may wish to take this approach if they want to ensure there is no delays regarding their resignation.

The most important takeaway from these changes is to remain punctual when lodging changes with ASIC in order to avoid delays or charges.