Resigning directors beware: the importance of notifying ASIC

It is now more important than ever for companies to have effective systems in place to ensure that they notify ASIC of changes to their company within the prescribed timeframes.

 

In particular, as a result of recent amendments to the Corporations Act 2001 (Cth), if ASIC is notified of a director's resignation after the prescribed 28-day period from when the director resigned, the date that the resignation takes effect will be the date that ASIC is notified, not the date the director provided the letter of resignation to the company.

These amendments were introduced in an effort to curb back-dating of director resignations to avoid liability in the context of phoenixing activity, but their application is not limited to those circumstances.

Significantly, if ASIC is not notified of a director's resignation, the director risks remaining on the hook for any claims made against the company's directors (for example, for breaches of directors' duties, insolvent trading or unpaid tax liabilities).

Once a director or company is late in notifying ASIC of the director's resignation, the director or company may apply to the Court or ASIC to fix the delay so that the resignation has effect from the time the director handed in their resignation (rather than the later date that ASIC was notified).

However:


  • the Court will only fix the resignation date if it is satisfied that it is just and equitable to do so; and
  • ASIC must not fix the resignation date unless it has had regard to:

    • any conduct, act or omission of the person in notifying ASIC of the resignation; and
    • the reasons for any delay in notifying ASIC.
There are also time limits on when such an application can be made:

  • an application to the Court must be brought within 12 months after the person ceased as a director (or such longer period that the Court allows); and
  • an application to ASIC must be brought within 56 days after the day the person ceased as a director.

What should I do?

It is important for companies to have systems in place to ensure that ASIC is kept updated of changes to the company's details.  If a company fails to do so, it may face penalties. More importantly, in the case of director resignations, delay beyond the prescribed 28-day notice period will mean that a director's resignation will not take effect until the date that ASIC is actually notified – which could expose former directors to the risk of potential personal liability.

Companies may wish to allocate someone within the organisation to have responsibility for ensuring that ASIC is updated about relevant changes within the company. This may be the company secretary if there is one, or in the case of companies based overseas, the appointed local agent.

Companies may also wish to adopt policies and processes to ensure that the responsible person is notified as and when changes are made within the company, so things don't fall through the cracks.

From the director's perspective, our advice is that you should not assume these things have been done. If you resign from a company's Board, you should ask to receive a copy of the notification lodged with ASIC so you have proof that it has been done.

If you would like advice on the recent phoenixing amendments to the Corporations Act, or any matters set out in this article, please don't hesitate to contact us to discuss – we would be happy to assist.

Contributors

Toby Carter Special Counsel
Michele Izzo Associate
Andrew Gouveia Law Graduate