Recent amendments to the Corporations Act 2001 (Cth) (Corporations Act) targeted at improving the accountability of company directors affirms the importance of immediately notifying the Australian Securities and Investments Commission (ASIC) of a director’s resignation.
What are the changes?
Changes introduced to the Corporations Act will impact when a director’s resignation takes effect. If ASIC is notified of a director’s resignation after the prescribed 28-day period from when the director actually resigned, the resignation will take effect when ASIC is actually notified, rather than the date the outgoing director provided a letter of resignation to the company.
In the event of a late notification, the relevant director or the company may apply to ASIC or the Court for it to fix the effective date of the director’s resignation as the day that the director actually resigned from the company, rather than the date that ASIC was actually notified of the director’s resignation.
Applications to ASIC must be made within 56 days after the day the person stopped being a director of the company, and must be in a prescribed form. Applications to the Court must be made within either 12 months after the day the person stopped being a director of the company or such longer period as the Court allows.
The Court and ASIC must not fix the resignation day as the effective date of the director’s resignation unless certain criteria are met. The Court must be satisfied that it is just and equitable to do so. ASIC must have regard to any conduct, act, omission or representation of the applicant in relation to notifying ASIC of the resignation, and the reasons for any delay in notifying ASIC of the resignation.
What should you do?
Companies should ensure they have reliable processes and systems in place to ensure ASIC is immediately notified of relevant changes including the resignation of directors and other officeholders. Typically this will be managed by the company secretary however some organisations often outsource this secretarial function to their accountants or lawyers.
If ASIC is not notified of a director’s resignation within 28 days of the date the outgoing director provided a letter of resignation to the company, the director’s resignation will not take effect until the date that ASIC is actually notified. This could expose former directors to personal liability associated with claims against the Board in relation to matters arising after the date of their actual resignation.
This means that directors should take a proactive approach to ensure that ASIC is immediately notified of their resignation and in any event, no later than 28 days from their actual resignation. This will be particularly relevant for company directors who are required to resign as part of a transaction whereby a third-party purchaser acquires the share capital of that company.
If you would like to discuss these changes to the Corporations Act or you require general and ongoing secretarial support for your company, please contact me on 07 3224 0265.