ASIC has announced changes to the way it will process director resignation changes from 18 February 2021. The changes are designed to implement anti-phoenixing regulations passed by the Australian government.
The "Last Director Standing" Rule
From 18 February 2021, ASIC will no longer allow the resignation of the last company director from a company, unless that director is simultaneously replaced by a new appointment.
The Corporations Act 2001 (Cth) currently provides that all companies must have at least 1 director who ordinarily resides in Australia (a minimum of 3 directors is required for a public company) — see s201A.
Despite these requirements, ASIC would previously record the resignation of the last-remaining director, meaning that a company could potentially be left in a "director-less" state if all of its directors were to resign.
ASIC had powers to then initiate regulatory compliance action against the company, if it failed to appoint a replacement director within a reasonable timeframe.
Under the changes, ASIC will refuse to record a resignation of the last-remaining director of a company, whether that resignation is notified via a Change of Company Details Form (Form 484) or a Notice by Officeholder of Resignation or Retirement (Form 370).
Some exceptions apply to the rule, including where:
- the director has died;
- the company is being wound up or is under external administration;
- the director never consented to their appointment as a director of the company;
- (presumably) the company or relevant director otherwise obtains a court order to give effect to their resignation.
Sections 203AB and 203CA of the Corporations Act provide:
203AB – Resignation of directors – resignation has no effect if company has no other directors
(1) The resignation of a director of a company does not take effect if, at the end of the day that the resignation is to take effect, the company does not have at least one director.
203CA – Resolution to remove directors – resolution is void if proprietary company has no other directors
(1) A resolution by members of a proprietary company to remove a director of the company is void if, at the end of the day that the resolution is to take effect, the company does not have at least one director.
Backdating Resignations Prohibited
A company (or the resigning officeholder) is also required to notify the effective date of resignation of an officeholder from the company.
The standard requirement is that ASIC must be notified within 28 days of the effective date of resignation — s205B(5).
A company's failure to notify ASIC of the resignation of a director is also a strict liability offence — s205B(7). Late notification of the resignation results in the company incurring an ASIC late lodgement fee.
However, prior to the changes, there was no limit on how late a notification of resignation could be lodged with ASIC (so long as the late fee is paid by the company).
It was also possible for a director to attempt to "backdate" their resignation.
For example: a director may attempt to backdate resignation to avoid an adverse event that occurred while they still were recorded as being a director of the company, such as an insolvency event or director's liability event.
Such practices are of course potentially illegal, and could fall foul of laws that impose personal obligations on directors, such as insolvency, tax liabilities, superannuation guarantee liability and workplace health and safety regulations.
Under the new changes, ASIC has noted that it will not observe the stated resignation date where the notification is "backdated" by more than 28 days.
In such cases ASIC will instead record the effective resignation as the date the notification is actually lodged with ASIC, reducing the potential for fraudulent backdating of resignations.
As an example:
A company lodges a Notification of Director Resignation with ASIC on 1 November, but states the director's effective resignation date was 1 April.
In this scenario, ASIC will record the effective date of resignation as 1 November. The company will still be required to pay any late lodgement fees due to the company's failure to notify ASIC of the resignation within 28 days.
ASIC notes that exceptions may be applied where the company, or the relevant director, lodges an application with ASIC or a court to change the effective resignation date.
It is important for companies and their officeholders to comply with their obligations under the Corporations Act.
This includes when an officeholder resigns, retires or is removed from a company. Officeholders should ensure that they promptly notify ASIC of any resignation, or ensure that the Company lodges the correct notification with ASIC in a timely manner.
Failure to lodge a notification of resignation could result in severe consequences for an officeholder (such as director's personal liability) where the notification is not lodged within the relevant time limits.
Proprietary companies must also ensure that there is at least 1 appointed director at all times.