Recent changes to ASIC rules regarding resigning as a director

Recent changes to ASIC rules regarding resigning as a director

If you or someone you know is planning to (or has recently) resigned as a director of a company then you may want to read on as there have recently been some important changes to legislation which form part of a suite of reforms designed to prevent illegal phoenix activity.

This article may also be worth a read if you are an accountant who processes director resignations on behalf of your clients. These changes are impacting upon ASIC procedures and have the potential to result in greater exposure for company directors and ex-directors, even those who are resigning for genuine and legitimate reasons..

As of 18 February 2021, ASIC changed the way it processes director resignations. Resignations notified over 28 days afterwards will only be deemed effective from the notification date. In other words, ASIC will no longer accept ‘back-dated’ resignations from directors. Any resignations that are notified to ASIC more than 28 days after the stated date of resignation will be treated as having occurred on the date of lodgement with ASIC (and not on the stated date). ASIC’s records will therefore show the director having resigned on the notification date although note that the new rule does not apply to company secretaries. The purpose of this change is to prevent directors from back-dating resignations in an attempt to avoid liability for events which might have occurred during the period in between their purported resignation and the date ASIC is notified.

It is worth noting that a resignation notified to ASIC within the 28 day period will still be observed and recorded by ASIC as occurring on the stated date of resignation – not on the date of notification. And remember, resigning directors do not have to rely on the company to notify ASIC under a Form 484 – the officeholder may themselves lodge a Form 370 (Notice by Officeholder of Resignation or Retirement).

As well as targeting phoenix activity, this new approach will also capture directors who genuinely resigned on the earlier date, but where the director and the company (for whatever reason) missed the 28-day deadline to notify ASIC. Before 18 February 2021, the only consequence would have been a late fee payable by the company. Now, the consequences for a late notification could be much more significant for the outgoing director. In the case of a genuine resignation, an ex-director who misses the notification deadline may have had no decision-making power, or control of a company’s affairs after resignation, but may still have personal liability under the Corporations Act for events occurring in that interim period (for example, insolvent trading or unpaid taxes).

ASIC will also now refuse to accept notices of director resignation if the notification relates to the sole (or only remaining) director of a company – also referred to as the ‘Llst director standing’ rule. Although section 201A of the Corporations Act has always required proprietary companies to have at least one director, ASIC has previously accepted and recorded the resignation of a sole (or ‘last’) director and permitted a company to be without a director for a reasonable time until a replacement director is appointed. Section 203AB of the Corporations Act (which states that resignations will not take effect if, following the resignation, the company will not have at least one director) took effect from 18 February 2021. As a result, as a general rule ASIC will now refuse to accept, and will not record, the resignation of a sole or ‘last remaining’ director. The exceptions to the general rule are where a director has died, where a person did not provide their consent to act as a director, and where the company is being wound up or under external administration.

These changes highlight the need for good corporate governance, planning for director succession, diligent record keeping, and notifying ASIC in a timely manner when board changes are made.

Finally, if you have read this far and think that you will need some practical advice about your situation, then now is probably the time to get in touch. Austral Legal can help with advice for directors or companies in relation to compliance and/or prosecution issues. We offer an initial discounted 30-minute SmartMove appointment for $80 by phone or in person at our office to discuss your situation.

Bookings can be made online  or simply by phoning our office on 08 9745 9550. Once we have a handle on what is required, we may well be able to offer a fixed fee for any further legal services, giving you cost certainty from the start. Austral Legal. Practical advice.