A significant change will occur this week with regard to Australian directorships. Please find details about this change below, and let us know if you require any further advice.

In February 2020, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Phoenixing Act) was passed by Parliament. The Phoenixing Act is aimed at assisting regulators and liquidators to combat illegal phoenixing activities, by holding directors accountable and preventing them from improperly backdating resignations or leaving companies without directors.

The Phoenixing Act introduces amendments to the Corporations Act 2001 (Cth). While the amendments are aimed at combating phoenixing activities, all directors would be well advised to take note of the key changes, which take effect on 18 February 2021.

Resignation date

If a director's resignation is notified to ASIC more than 28 days after the resignation, the resignation date will be taken to be the date that the notice is lodged with ASIC. The director or the company may apply to ASIC (provided such application is made within 56 days of the person ceasing to be a director) or the Court, to determine a different resignation date. However, these applications will be subject to increased scrutiny and directors cannot expect automatic relief.

Last director standing

A director’s resignation will not be valid if, after the resignation, the company does not have at least one other director. To enforce this, ASIC have advised that notices submitted to ASIC to cease the last remaining director without replacing that director, will be rejected with effect from 18 February 2021.

There are limited exceptions, including that:

• the last director is deceased,
• the company is being wound up or is under external administration, or
• the director never consented to the appointment.

The practical effect for directors

Directors (and companies) must ensure that notice is given to ASIC of a director’s resignation within 28 days of the relevant person ceasing to be a director of the company. Unless an application to ASIC or the Court is successful in determining a different date, a failure to lodge the notification within 28 days will result in the effective date of resignation being the day that ASIC was notified of the resignation.

The last remaining director of a company cannot validly resign or be removed without a replacement director being appointed. This is particularly relevant for non-executive directors, and professional practitioners who may act as a director of a client company in the course of providing services to that client.