Do I need to be an Australian resident to become a company director or secretary?

The Corporations Act 2001 (Cth) (Act) contains various provisions relating to constitutions of Australian companies, such as the requirement for a threshold number of directors and secretaries to ordinarily reside within Australia. These requirements are often overlooked in the context of a merger, potentially placing the newly merged group at risk of breaching the Act.

 

The provisions

Directors

Under section 201A of the Act:

  • a proprietary company must have at least 1 director, and that director must ordinarily reside in Australia
  • a public company must have at least 3 directors, with 2 directors ordinarily residing in Australia.

Secretaries

Under section 204A of the Act:

  • a proprietary company is not required to have a secretary, but if it does, at least 1 secretary must ordinarily reside in Australia
  • a public company must have at least 1 secretary and they must ordinarily reside in Australia.

Consequences of breach

There is no specific penalty for a breach of section 201A. However, by virtue of section 1311(1)(b), non-compliance may constitute an offence and attract a company fine of up to $4,200. In addition, the company may be prosecuted for failing its statutory obligations. A breach of the provisions relating to secretaries is an offence of strict liability, which attracts a similar fine to that for directors. The penalties for a breach of section 204A are specifically outlined in Schedule 3 of the Act.

Case law highlights that the consequences of failing to comply with the residency requirements for directors are less than clear. This lack of clarity is further compounded by the operation of section 201M, which stipulates that an act done by a director will be effective even if their appointment is invalid for failing to comply with a company constitution or the Act. Section 204E mirrors section 201M for company secretaries.

These sections do not provide any guidance on whether an act performed by a director or secretary who does not comply with the residency requirements, will be binding on the company or make the company liable to third parties. Further, section 201M will only validate acts that are legally effective if the person doing them is a director.

The operation of section 201M has created significant confusion regarding the consequences of a breach of section 201A.  For example, in Re ColorBus Pty Ltd (in liq); Mentha and Another v Colorbus Pty Ltd (in liq) and Another (2004) 213 ALR 789 a sole director who lived in the US passed a resolution appointing administrators. The administrators then sought a court order confirming the validity of their appointment by virtue of s 201M. The court held that the appointment was valid under section 201M, even if the director was invalidly appointed to the role.

Takeaways

The consequences of a breach of section 201A remain unclear. However, pecuniary penalties and potential prosecution may arise if a court finds that a company has failed to comply with its statutory obligations. While section 201M operates to validate company transactions even if a director or secretary is appointed invalidly, there is little guidance as to whether the protection will extend to validate third party transactions, or whether the acts of an invalid director or secretary will bind the company. New entrants to the Australian market will accordingly want to ensure they are compliant with the easily-overlooked requirements for resident director and secretary appointments.

Further information

If you would like further advice regarding compliance with residency requirements, please contact McCabe Curwood.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.

Contributors

Samantha Beattie Law Graduate