As at 18 February 2021, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (“Act”) came into operation, which saw significant amendments to the Corporations Act 2001 (Cth) (“Corporations Act”), including the introduction of a number of changes concerning company directorships.
Illegal phoenixing involves creating a new company to continue the business of an existing company by stripping and transferring the assets of the existing company to the new company. The existing company is typically placed into liquidation to avoid paying that company’s outstanding liabilities, thereby denying creditors access to those assets to meet unpaid debts.
Resignations of directors
The Act now requires that resigning directors, or the company, notify the Australian Securities & Investments Commission (“ASIC”) of a director’s resignation within 28 days of that resignation. In the event that ASIC is not notified within the required timeframe, the resignation will take effect only on the day that notice is lodged with ASIC.
However, there are certain exceptions including when a company is being wound up or under external administration, when the director had never consented to the appointment, or when the last director is deceased.
Section 203AA(5) of the Corporations Act now provides that a director or company may fix an earlier resignation date by applying to ASIC within 56 days after the day the person stopped being a director of the company. Applications may also be made to the Court within 12 months after the day the person stopped being a director, or such longer period as the Court allows.
A similar further provision now provides that the resignation of a director of a company will not take effect if, at the end of the day that the resignation is to take effect, the company does not have at least one director. This also extends to a members’ resolution, where the effect of which would be to leave the company without a director.
The changes to the Act will hold directors accountable for their actions and for any misconduct whilst being the last sole director of a company. They will also prevent directors from avoiding responsibility by improperly backdating resignations or leaving companies without directors.
Engaging in illegal phoenix activity may constitute serious breaches of the Corporations Act, could attract significant penalties and up to 15 years imprisonment.
For further information, or to discuss these recent changes, please contact Mr Simon Tsapepas on 03 9211 0693 – firstname.lastname@example.org – www.madisonbranson.com