Updates to director resignation provisions under the Corporations Act

Section 203A of the Corporations Act 2001 (Cth) (a replaceable rule) provides that a director may resign by giving written notice of the resignation to the company at its registered office. For companies with a Constitution, most have a similar provision. Prior to the introduction of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Act), the Corporations Act was silent on the issue of whether a director could resign, where doing so would mean that the company would no longer have any directors. Further, the Corporations Act did not specify when a director's resignation would take effect, with the assumption being that this would be the date written notice is provided. This allowed for directors to notify ASIC of their resignation after significant time had passed since their purported resignation. This is relevant to, amongst other things, directors' duties, particularly if a company is later found to have been insolvent. Resignations deemed ineffective The Act introduces section 203AB into the Corporations Act, which provides that a director's resignation, or a resolution by members of a proprietary company to remove a director, will have no effect if the company does not have any other directors at the date the resignation or resolution would take effect. While intended to prevent illegal phoenixing, the impact of this section is relevant to all directors. Accordingly, directors need to be aware that if the company has no other directors, any attempted resignation will be ineffective. The new provision does not prevent a director resigning, if the resignation is to take effect on or after the day that the company is wound up. ASIC have announced that any lodgement submitted (either via Form 370 or through the online portal) that attempts to resign or remove the last director of a company, without adding a replacement director, will be rejected. ASIC lists a number of exceptions to this, including where the last director is deceased, the company is being wound up or where the officeholder never consented to the appointment. When does a director resign? In order to clearly specify the date a director's resignation is to take effect, the new provision stipulates that;

1. where notice is lodged within 28 days of a director's resignation, the date of resignation will be the actual date of resignation; and
2. where notice is lodged after 28 days, the director's resignation will be deemed to take effect on the date the notice is lodged with ASIC.

These amendments aim to prevent directors from improperly backdating resignations and apply to all director resignations, irrespective of the number of directors remaining in office. They further emphasise' that companies should ensure that the required notice is promptly lodged with ASIC. Both the Court and ASIC may order a correction to the resignation date. This requires an application to be made to ASIC, within 56 days, or to the Court, within 12 months, of the actual resignation date. These new restrictions apply for directors who resign on or after 18 February 2021.

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~ with' Elissa Raines,' Lawyer