A new law is set to be introduced which aims to treat a person as continuing to be a director of a company even after they have resigned. This means the individual will still have continued exposure to all the laws that make them personally liable for any company debts.
Directors can be held personally liable for company debts for a number of reasons such as; incurring a debt that will make the company insolvent, allowing the company to trade while insolvent, unpaid PAYG withholding, employees’ superannuation and GST (via a Director Penalty Notice).
If you are a director of a company at the relevant time, you can be held liable for these and other exposures.
Upon resigning as a director of a company, a notice must be lodged with ASIC within 28 days after resigning. In most cases, the company secretary will lodge the notice, this can only be completed electronically. If the notice is lodged after the 28-day period, a penalty will apply, but you are still no longer a director from the date you resigned, which is stated in the notice.
The Corporations Act 2001 has been revised so that if the notice is lodged after the 28-day deadline, your resignation takes effect only from the date of when the notice is lodged. This new rule will apply from 18 February 2021 and onwards. The late penalty still applies as usual.
This is significant and important as there have been scenarios where former directors have fallen foul of the above exposures who would have been cleared had their resignation taken effect a day earlier.
When an individual runs their own business, they would typically be a continuing director of your own company, managing its affairs on an ongoing basis. So, this issue is of practical significance mainly for independent or non-executive directors, or where there is greater separation between ownership and management.
When deciding to resign it is crucial to make sure your resignation letter is communicated to the company. Make sure you keep a copy of your letter for your own reference. The process of completing a form electronically via ASIC is simple and user friendly.
If the company you are the director of isn’t prepared to lodge the required form, you, the resigning director, are allowed to do it yourself. However, in that case it’s a different form (Form 370), which can be lodged either electronically or by paper. If you have to complete the form by paper, make sure you do it ahead of time and don’t leave it till the last minute because the paper form will take time to process and may take some time to be received in the mail.
If you unfortunately find yourself in the situation where the ASIC notice has been lodged late, and you are genuinely facing a serious prospect of personal liability due to your timing mishap, you can apply to ASIC or the Court for your resignation to be effective from an earlier date.
Despite this, there are deadlines for applying, and there is a whole other process you will have to go through, This process is generally expensive and is likely to be very stressful, as there is no guarantee that is will be successful. It is best to play it save than it is to be sorry and to make sure that your ASIC notice is lodged as early as possible, whether it is lodged by yourself or the company you intended to no longer be the director of.