Director resignations: new laws apply from 18 February 2021

From 18 February 2021, a company director will not be able to backdate their resignation more than 28 days or resign if it means the company would be left without a director.

 

Under the new laws, a resignation of a director takes effect:

1.       if, within 28 days after the day the person stopped being a director of the company, ASIC is notified of that fact, the day the person stopped being a director of the company, or

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

 

The Director resignation laws have been created as part of anti-phoenixing measures, along with other measures such as Director Identification Numbers.  Illegal phoenix activity involves creating a new company to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements.

 

From 18 February 2021, the resigning director or the company will need to notify ASIC of a director resignation within 28 days. Where ASIC is not notified within 28 days, the effective resignation date will be the document lodgement date. For example, if a director resigns on 1 March 2021 and does not notify ASIC of their resignation until 1 August 2021, ASIC will record their resignation as 1 August 2021 on the corporate register. To fix an earlier date, the company or director must apply to ASIC or the court.

 

The laws also prohibit companies from removing the last remaining director on ASIC records, leaving a company with no directors.

 

According to ASIC, 'Backdating resignations was a common tactic used by directors to engage in illegal phoenix activity'.