Resigning as a Managing Director vs a Director

In Short

• Managing Directors and Directors resign in different ways because Managing Directors hold both a board role and an executive employment role.
• Managing Directors may resign from the executive role only, or from both roles, each with different legal and contractual steps.
• Businesses must manage governance, employment, documentation and compliance risks during leadership transitions.

Tips for Businesses

Check your constitution, shareholders’ agreement and employment contracts before any resignation. Clearly document which roles are ending, follow proper notice and handover processes, and lodge required ASIC forms on time. Plan succession early and review insurance, governance and board structure impacts to avoid disputes, gaps in leadership and compliance issues.

Summary

This article explains Managing Director and Director resignation processes for Australian businesses and how companies should manage leadership transitions under Australian corporate and employment law. It provides a practical guide prepared by LegalVision’s business lawyers, who specialise in advising clients on corporate governance, executive transitions and regulatory compliance.

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Table of Contents

• Understanding the Roles 
• Key Differences in Resignation Processes
• Documentation Requirements
• Legal Considerations and Ongoing Duties
• Practical Steps for Different Resignation Scenarios
• Timing and Strategic Considerations
• Ongoing Liability and Insurance Considerations
• Key Takeaways
• Frequently Asked Questions

When it comes to corporate governance in Australia, understanding the distinction between a Managing Director’s and a Director’s resignation is crucial for businesses navigating leadership changes. While both roles involve significant responsibilities, the resignation processes and implications can differ substantially. This article explains the legal differences between Managing Director and Director resignations in Australia, including considerations businesses must manage during leadership transitions.

Understanding the Roles 

A Director is a person appointed to the board of a company who has a duty to act in the best interests of the company and its shareholders. Directors are responsible for:

• strategic decision-making;
• overseeing company operations;
• ensuring compliance with legal obligations; and
• risk management.

On the other hand, a Managing Director typically holds a dual role as they are both a Director on the board and an executive employee responsible for day-to-day management. The Managing Director usually:

• implements board decisions;
• manages daily operations;
• reports to the board; and
• acts as the primary executive leader.

Key Differences in Resignation Processes

The resignation processes differ significantly between these roles and the specific options available. For Directors, resignation generally requires:

• written notice to the company with no specific notice period mandated by the Corporations Act 2001; 
• though the company constitution may specify requirements; and 
• resignation typically takes effect immediately upon receipt of written notice. 

Managing Directors face more complexity as they have multiple resignation options depending on their company’s constitution and employment arrangements. They may resign solely from their executive managing director role while continuing as a non-executive Director, which would involve terminating their employment contract but maintaining their board position and directorship duties. 

Documentation Requirements

Documentation requirements vary depending on which resignation path is chosen. Directors need to provide a written resignation letter, ensure ASIC Form 484 is lodged within 28 days and update company registers. 

Managing Directors who resign only from their executive role must handle:

• employment termination documentation; 
• handover procedures for executive responsibilities; and 
• review employment contract terms regarding restraints and entitlements.

However, their directorship remains unchanged, with no ASIC filings required for the directorship component. 

Legal Considerations and Ongoing Duties

Both roles involve important legal considerations, including: 

• fiduciary duties to act in good faith; 
• avoid conflicts of interest; and 
• not misuse information or position. 

For Directors, these duties continue until resignation is effective, while for Managing Directors who retain their directorship, these duties continue in their capacity as a Director even after resignation from the executive role. 

Managing Directors must additionally consider employment law implications, such as:

• contractual notice periods; 
• restraint clauses including non-compete and non-solicitation provisions; 
• entitlements like leave accruals and termination payments; and 
• potential garden leave requirements. 

The company’s constitution and any shareholders’ agreement will typically specify whether the Managing Director role can be separated from the directorship. They may include provisions about: 

• board composition; 
• minimum director numbers; or 
• specific requirements for executive positions.

Practical Steps for Different Resignation Scenarios

The practical steps for resignation reflect these different options. Directors should:

• review the company constitution for specific procedures; 
• prepare a written resignation letter; 
• submit it to the company secretary or board; 
• ensure ASIC Form 484 is lodged; 
• return company property; and 
• consider ongoing liability and insurance coverage. 

Managing Directors face extra steps, including: 

• checking company documents;
• reviewing their employment contract and constitution; 
• giving proper notice for the executive role; 
• managing handover arrangements; and 
• clarifying their ongoing role if they remain as a non-executive director.

Timing and Strategic Considerations

Timing and strategic considerations are crucial for all scenarios, including:

• the impact on financial reporting periods; 
• key business decisions; 
• market-sensitive information and continuous disclosure obligations, succession planning arrangements; and 
• for those retaining directorship, how the transition from executive to non-executive Director will affect board dynamics and decision-making. 

Potential complications can arise, including: 

• contested resignations with disputes over effective dates; 
• questions about whether resignation applies to one or both roles; 
• breaches of employment contract during resignation periods; 
• conflicts over restraint enforcement when transitioning to non-executive status; and 
• constitutional issues if the resignation would leave the company without the required executive leadership or minimum director numbers.

Ongoing Liability and Insurance Considerations

It is important to note that resignation from the executive role does not eliminate directorship obligations, and Managing Directors transitioning to non-executive status must understand their continuing fiduciary duties, potential ongoing liability as a Director, and how their director and officer insurance coverage may be affected. 

The company’s constitution may also specify particular procedures or board approvals required for such transitions, and there may be implications for remuneration structures, equity arrangements and voting rights.

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Key Takeaways

Best practice recommendations include: 

• seeking legal advice before resigning to understand all available options; 
• documenting everything with clear written records; 
• planning proper transition procedures that account for the continuing or changing relationship with the company; 
• reviewing all statutory and contractual obligations for both positions; 
• considering strategic timing to minimise complications; and 
• negotiating departure terms that clearly define the ongoing relationship if directorship is retained. 

Companies should clearly separate executive and director roles in their documents, plan for succession, and follow strong governance processes for role transitions. Moreover, understanding these structures helps manage resignations properly, protect all parties, and maintain effective corporate governance.

LegalVision provides ongoing legal support for Australian companies through our fixed-fee legal membership. Our experienced lawyers help businesses manage contracts, employment law, disputes, intellectual property and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.

Frequently Asked Questions