Over the past few years, the Commonwealth Government have been working toward legislating against illegal phoenix activity and on 18 February 2021 the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 came into effect.
The changes seek to prevent directors from shirking their duties by:
(i) backdating resignations; or
(ii) ceasing to be a director in circumstances that would leave a company with no directors.
The aim of the new legislation is to close existing loopholes in the Corporations Act 2001 (“the Act”), which are frequently abused by illegal phoenix operators and unscrupulous advisors.
You and your clients should be aware of the following changes to the Act:
Section 203AA of the Act
This section relates to the timing of the resignation of directors. If the prescribed form, being the Form 484, is lodged with the Australian Securities and Investments Commission (“ASIC”) within 28 days of the date of resignation, the resignation is effective from the actual resignation date. If the Form 484 is lodged more than 28 days after the date of resignation, the date of resignation is now taken to be the date of the lodgment of the Form 484. Late fees will still apply.
In the event the Form 484 is lodged more than 28 days after the date of resignation, a company or the director may apply to ASIC or the Court to give effect to the resignation day being the date of resignation. An application needs to be made within:
(i) 56 days of the actual resignation date if the application is to ASIC; or
(ii) 12 months of the actual resignation date if the application is to Court, or such longer period as the Court allows.
Section 203AB of the Act
This section relates to the resignation of directors where it will leave a company without a director at the end of that day. A director may no longer resign if doing so will leave a company without a director at the end of the day the resignation takes effect except in circumstances where the company is wound up that day. With limited exceptions, Form 484 and/or Form 370 lodgments ceasing the last appointed director will be rejected by ASIC if there is no replacement director.
There may be circumstances where a replacement director cannot be appointed before the last director resigns. This section provisions for this by ensuring that the resignation will be effective as long as another director is appointed the day of the resignation.
In circumstances where multiple directors resign on the same day, all resignations will be ineffective unless:
(i) one (1) director remains appointed; or
(ii) a replacement director is appointed that day.
Section 203CA of the Act
Members of a proprietary company may not remove a director if doing so would leave the company without a director at the end of that day except in circumstances where the company is wound up that day.
Notifications to ASIC
ASIC Form 484
Companies can lodge a Form 484 to notify ASIC of resignations of a director. In order for the resignation date to be effective, the Form 484 should be lodged within 28 days of the resignation date.
ASIC Form 370
Resigning directors can personally lodge a Form 370 advising ASIC of their resignation as a director. A letter of resignation containing the information set out in ASIC Guide to the Form 370 must accompany this Form.
The intended consequences of the aforementioned legislation is to combat illegal phoenix activity in order to preserve the assets available to creditors in the winding up of a company. Furthermore, all outgoing directors must be aware of their obligations to notify ASIC of their resignation in a timely fashion, or risk being exposed to liability for events occurring past the date of their resignation.
In the event you or your client requires any further information in relation to the foregoing we invite you contact our office.