In Short
- Secure a formal resignation letter and record the effective date.
- Notify ASIC within 28 days or the resignation will take effect from when ASIC receives notice.
- Review board composition to ensure compliance with legal and constitutional requirements.
Tips for Businesses
If a director resigns, act quickly and thoroughly. Keep detailed records, notify ASIC on time, and communicate clearly with stakeholders. Consider whether a replacement is needed to maintain compliance and continuity. Staying organised helps avoid legal issues and preserves trust in your governance processes.
A director’s resignation can have a significant impact on your company’s governance and operations. Whether due to personal reasons, strategic disagreements, or external pressures, it is essential for boards to manage these departures with care and transparency.
Before taking action, it is helpful to understand the reason behind the director’s resignation, as this can provide valuable insights for the company. If the resignation is due to unresolved issues or disagreements, addressing these concerns quickly can prevent further disruptions.
This article covers best practices for boards when responding to director resignations, encompassing legal, procedural, and governance considerations.
Obtain a Formal Resignation
You should ensure that the resignation is acknowledged in writing and recorded in the company’s records. The effective date mentioned in the letter will also determine when notifications need to be sent to regulators.
Document the Process Thoroughly
It is essential to keep accurate records of the director’s resignation to ensure good corporate governance. The board must ensure that all aspects of the resignation are properly documented to meet regulatory obligations and maintain a clear audit trail.
You should keep the following documents:
- a copy of the resignation letter and any related correspondence;
- board meeting minutes and resolutions where the resignation was discussed and acknowledged;
- resolutions appointing a replacement, if applicable; and
- notifications are made to ASIC or other relevant regulatory bodies.
Obtaining relevant documents related to the director’s resignation shows that you and the board have acted correctly and in line with governance procedures, both internally and as required by law.
It is essential to clearly communicate board changes to stakeholders and regulatory bodies to maintain trust and confidence. Internally, it is good practice to hold a board meeting or pass a resolution to inform the remaining directors of the resignation. Additionally, you must notify ASIC of any changes to the company as soon as possible.
Publicly listed companies may have market disclosure obligations to meet. This includes notifying ASIC and, where applicable, the Australian Securities Exchange (ASX).
Legal and Contractual Obligations
You must notify ASIC of a director’s resignation within 28 days. If you miss the deadline, ASIC will treat the resignation as effective from the date it receives the notice.
Boards must also review any employment or service agreements relevant to the director, as these may contain clauses about notice periods, non-complete obligations, and indemnity.
Evaluate the Impact on Governance and Operations
A director’s resignation can impact various aspects of the company’s governance and operations, so it is vital to ensure that the board continues to meet its regulatory and responsibility requirements.
Regularly assess your board’s composition to meet legal obligations under the Corporations Act.
Make sure it also aligns with your constitution and any shareholders’ agreement. You may also want to consider whether a new or replacement director should be appointed.
This guide will help you to understand your corporate governance responsibilities, including the decision-making processes.
Key Takeaways
A director’s resignation can have a significant impact on a company’s governance and operations; therefore, it is essential to manage the process carefully and openly. You should keep the following points in mind:
- obtain a formal written resignation that clearly states the effective date;
- document the process thoroughly;
- notify ASIC within 28 days of the resignation to ensure it is effective from the stated date; and
- ensure the board composition meets the requirements outlined by law and your governing documents.
If you need more advice on a director’s resignation, our experienced corporate lawyers can help you find the best option through our LegalVision membership. For a low monthly fee, you will get unlimited access to lawyers who can answer your questions and assist in drafting and reviewing your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
You must obtain the resignation in writing and document the process clearly, including board resolutions and notifications to ASIC. The resignation must be lodged with ASIC within 28 days; otherwise, it will be treated as effective from the date ASIC receives notice. Good record-keeping helps ensure legal and governance compliance.
Not always. However, you should assess whether the board still meets the minimum legal and constitutional requirements. If the resignation affects the board’s capacity to operate effectively or meet governance obligations, appointing a new director may be necessary to maintain proper oversight and decision-making.
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