Page 24 - Print21 Jan-Feb 2022

Legals
New rules for directors have
arrived – are you ready?
Lawyer Wal Abramowicz says new regulations will limit the wriggle room for company directors.
New laws relating to
the responsibilities of company directors took effect earlier this year. These reforms are aimed
at stopping the practice of "illegal phoenixing". Illegal phoenixing occurs where a new company is created to continue the business of a company which has been deliberately liquidated in order to avoid paying its debts. The impact of these reforms, particularly with respect to the resignation of directors, means new responsibilities which could affect your business.
Previously, company directors could resign from a company
New rules: aimed to stop directors running away from issues and phoenixing companies
irrespective of how many directors the company had. In theory, a company could be left without directors if all remaining directors chose to resign. In practice, it
was often the case that either a director, administrator or liquidator would eventually be appointed.
This ensured that no individual director was disadvantaged by the
resignations of other directors. Despite this, the unrestricted ability of directors to resign meant that directors were able to avoid liability, disadvantaging other stakeholders.
The new laws prevent a director’s resignation from taking effect if
it would result in the company having no directors. This means that if a company has a single
director remaining, then they may only resign if another director, an administrator
or liquidator is appointed before 5pm on the same
day. Hypothetically, if multiple directors felt an urge to resign, then the resignation of the director who was last to lodge their resignation papers would not take effect. This might mean that even if you resign as a director in the appropriate way, you will be unable to resign as a director due to a lack of other directors in the company.
Previously, directors could backdate their resignations
to reflect when they actually resigned if they were overdue in lodging their paperwork with ASIC, however, they would be fined for doing so. The new laws require companies to notify ASIC of a director’s resignation within
28 days, otherwise the director’s resignation will be recorded as the day the relevant form is lodged. As a result, directors can no longer backdate their resignations.
Directors are also required to register with ASIC for a director identification number. Introduced as a way to improve confidence
in knowing who the directors
of a company are, the director identification number only needs
to be applied for once and will
follow that person for life. Existing company directors will be required to have a director identification number by 30 November 2022, while new directors have 28 days from their appointment to apply. There are penalties for those who fail to apply for a director identification number by the relevant deadlines.
These reforms underscore the importance of understanding
your rights and obligations as a company director. By removing the ability of directors to resign where there are no other directors in a company, and the introduction of an identification number, the ability
of directors to avoid liability has been reduced. There are significant legal implications for becoming
a company director, particularly when a company becomes insolvent – there is no substitute for legal advice when dealing with matters relating to directors’ responsibilities.
For more information contact Wal at Fox & Staniland Lawyers, Gordon, NSW Tel 02 9440 1202
Email: wal@foxstaniland.com.au 21
24 Print21 JANUARY/FEBRUARY 2022
“By removing the ability of directors to resign where there are no other directors in a company, and the introduction of identification number, the ability of directors to avoid liability has been reduced.”