Being a company director means you have a significant role and responsibility over the day-to-day running of that company. However, just like any job, there may be circumstances where you decide that you no longer wish to hold that position. If that is the case, it is important that you and the company both follow the necessary processes to ensure you properly resign from your role as director. This article will discuss the general procedure for stepping down as a company director and the potential implications of doing so.
Minimum Number of Directors
A private company must have at least one director who ordinarily resides in Australia. Meanwhile, a public company must have at least three directors, two of whom must ordinarily reside in Australia. If your resignation results in the company falling under the relevant threshold, the Australian Securities and Investments Commission (ASIC) will reject the resignation and deem it ineffective. If this is the case, the company will need to appoint another director before you can resign.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Following the Correct Process
If the company has a shareholders agreement or a company constitution, those documents will likely set out a process for how the directors can submit their resignations. Generally speaking, a director should be able to resign by submitting written notice to the company. However, the constituent documents might set out a different process.
If the company does not have a constitution, the replaceable rules in the Corporations Act 2001 (Cth) will apply. In this case, a director can resign by sending a written notice to the company’s registered office.
Continue reading this article below the form3. Notify ASIC of the Resignation
Like any change to the company’s details, you must notify ASIC of the director’s resignation within 28 days. Failure to do so within this time frame will result in the company paying late fees to ASIC. This can be done by:
- the company by lodging an ASIC Form 484 – change to company details; and
- the director by lodging an ASIC Form 370 – notification by the officeholder of resignation or retirement.
Both forms can be lodged online.
Implications for the Resigning Director
Under the Corporations Act, as long as you notify ASIC within the required time frame, then the effective date of a director’s resignation will be the day they stop acting as a director. For example, this could be the date they set out in the written notice to the company that they wish to cease to act.
However, suppose you fail to notify ASIC within 28 days of resignation. Accordingly, the date of resignation will be taken to have been the date the forms were lodged. This can be remedied but requires an application to ASIC or the courts, which may be time-consuming and costly. Therefore, the lodgement date has implications for your liabilities. For example, you may still be liable as a director during the period between your resignation and ASIC being updated if the forms have been lodged late.
Generally, when a director resigns, their legal obligations and requirements concerning that company also cease. However, you may still be liable for your conduct when you were a director.
Key Takeaways
Resigning as a company director is usually a straightforward process, done by submitting written notice to the company and notifying ASIC. However, the company’s constituent documents, such as the shareholders’ agreement and constitution, may set out a different process.
A resignation will not be effective if it means that the company falls short of the minimum number of directors required for that type of company. If that is the case, the company will need to appoint a replacement before you can resign. It is also important to remember that the date the resignation is effective depends on whether or not ASIC has been notified of the resignation in the required time frame.
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Frequently Asked Questions
Broadly speaking, resigning as a company director can happen by submitting written notice to the company and notifying ASIC of the resignation. However, the company’s constituent will set out the process which you must follow.
Not necessarily. If the resignation puts the company below the minimum number of directors required, ASIC will reject the resignation and deem it ineffective. Also, the effective date of resignation will depend on whether or not you’ve notified ASIC within the required time frame.
No. The ATO and ASIC may still hold you personally liable for activities the company participated in while you were a director, even if you have resigned. Also, if you or the company fail to notify ASIC within the 28-day time limit, ASIC will deem your resignation to have taken place on the day the forms were lodged. This means your liability may extend to this date, despite having resigned earlier.
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