Why director accountability is on the regulator radar

This article was current at the time of publication.

The Australian Securities and Investment Commission (ASIC) has tightened director resignation periods under Schedule 2 amendments to the anti-phoenixing laws.

Illegal phoenixing – the practice of taking a company’s business from one entity into another without paying outstanding liabilities – is estimated to cost the Australian economy between $2.85 billion to $5.13 billion each year.  

To combat the revenue drain, as of 18 February 2021 ASIC is no longer accepting resignation notices dated more than 28 days of receipt. 

For example, if a director ceases their role on 1 January 2021 but doesn't notify the regulator until 17 March 2021, the resignation date will be 17 March 2021. In this example, the director would remain a director for 65 days longer than they envisaged. 

If an earlier resignation is sought, the director or company must make an application to ASIC within 56 days of the claimed resignation date. The alternative is to make a court application within 12 months of that date.

The form numbers associated with director resignations have not changed.  

No director is not an option

A company must always have an ASIC-registered director. If ASIC receives the notification of a director’s resignation or a member minute to that effect with no replacement of director, the request will be rejected. 

This change is another way to make companies and directors accountable for their conduct. Some exclusions apply, including death and illness.

Client need-to-knows

• If any of your clients have recently resigned from their office-holding position in a company, they should consider checking that the ASIC database has been updated correctly with the effective date of resignation.
• Directors will remain responsible for their duties as a director until ASIC accepts the effective date of resignation. 
• They will remain liable for the conduct of the company. This includes any Director Penalty Notice (DPN) issued by the Australian Taxation Office (ATO).
• They will also be liable for insolvent trading if a liquidator is subsequently appointed, even if the director believes they had resigned from the position months before.
• This amendment is also a timely reminder that Australian Charities and Not-For-Profits Commission (ACNC)-regulated companies need up-to-date office-holder records. While ACNC guidance suggests that ASIC does not need to be informed of director changes, any directors in incorporated not-for-profits have the same obligations as any other director under the Corporations Act 2001.

Kristen Beadle CPA is the former Manager Public Practice and SME at CPA Australia