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ASIC Changes to Director Resignation Rules – How Directors can Comply

Are you a company director, planning on resigning?

New requirements have come into place that may affect you.

Back in February 2020, Parliament passed the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 – which came into effect in February 2021.

The legislation introduces new offences – and grants additional powers to ASIC and liquidators. This is to help combat illegal phoenixing and avoid systemic fraud.

The ASIC changes aim to hold directors accountable and prevent them from improperly backdating their resignation or leaving their company without a Director.

So why have these changes been made – and what do they mean for resigning Directors?

Why have ASIC made these changes?

The laws have been introduced to combat illegal phoenix activity.

Illegal phoenix activity involves creating a new company to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements.

What are the ASIC changes?

ASIC will no longer allow the resignation of the last company director, unless that director is simultaneously replaced by a new appointment.

Under the changes, ASIC will refuse to record a resignation of the last-remaining director of a company. This is the case whether that resignation is notified via a Change of Company Details Form (Form 484) or a Notice by Officeholder of Resignation or Retirement (Form 370).

Some exceptions apply, including where the:

* last director is deceased;
* company is being wound up or is under external administration;
* director never consented to their appointment as a director of the company;

If you are ceasing a director under any of these exceptions, you need to contact ASIC for assistance.

ASIC notes that exceptions may be applied. Generally where the company, or the relevant director, lodges an application with ASIC or a court to change the effective resignation date.

Other important ASIC changes

In addition to the above changes, if a director’s cessation date is notified to ASIC more than 28 days after the effective date, then the effective date will be overridden and replaced with the lodgement date.

Late fees still apply to the Change of company details form in this scenario.

For example;

* The Company Director resigns 1 April 2020 – the effective date
* Company notifies ASIC 1 November 2020 – the lodgement date
* ASIC will replace the effective date, with the lodgement date

These changes are intended to stop Directors deliberately backdating cessations to avoid legal responsibility to creditors.

A revised, later date of official resignation may have serious personal financial implications for the director if the company has been trading insolvently in the meantime.

How Directors can can comply

  • Make sure the company pays its debts on time and doesn’t trade insolvently.
  • Ensure all ASIC forms are lodged on time.
  • Be careful not to be the last director of a company if the company is experiencing financial difficulties.

If ASIC has overridden the effective date of a resignation with the form lodgement date then apply ASIC or the COURT to change a resignation date back to the effective date.

Note, this action will involve an application fee.

ASIC will release further information over the coming weeks on their website.

In the meantime – if you have any concerns regarding your company and in particular its solvency please contact us.

 

We would be happy to walk you through the process - and what these ASIC changes mean for you.

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