Director resignations have new laws to follow
ASIC has announced that the Federal Government has introduced new laws to help combat illegal phoenix activity. From 18 February 2021, a company director will not be able to backdate their resignation more than 28 days or resign if it means the company would be left without a director. Backdating resignations was a common tactic used by directors to engage in illegal phoenix activity.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 was enacted in February 2020 to help combat illegal phoenix activity. Illegal phoenix activity involves creating a new company to continue the business of an existing company that has been deliberately liquidated to avoid paying outstanding debts, including taxes, creditors and employee entitlements.
The reforms prohibit company directors from improperly backdating their resignation or leaving a company with no directors.
From 18 February 2021, the resigning director or the company will need to notify ASIC of a director resignation within 28 days. Where ASIC is not notified within 28 days, the effective resignation date will be the document lodgement date. For example, if a director resigns on 1 March 2021 and does not notify ASIC of their resignation until 1 August 2021, ASIC will record their resignation as 1 August 2021 on the corporate register. To fix an earlier date, the company or director must apply to ASIC or the court.
Applications to ASIC should be made within 56 days of the claimed registration date. Applications to the court should be made within 12 months of the claimed resignation date, unless the court allows a longer period.
If the court order is granted, you must submit this to ASIC along with Form 105 within two business days. If you do not meet this deadline, late fees will apply.
The reforms also prohibit companies from removing the last remaining director on ASIC records, leaving a company with no directors. ASIC will reject submissions of Form 484 or Form 370 to cease the last appointed director without replacing that appointment.
Disrupting illegal phoenix activity
These reforms assist the joint effort of ASIC and other government agencies in detecting, deterring and disrupting directors and advisers who engage in illegal phoenix activity.
Illegal phoenix activity can involve serious breaches of the law that include directors' duties, fraudulent concealment or removal of assets and fraud by company officers under the Corporations Act 2001. Penalties include large fines and up to 15 years imprisonment for company directors and secretaries and others involved.
Harper Group Pty Ltd – Chartered Accountants Frankston - Ph 9770 1547
Disclaimer: All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.
Please note we at Harper Group Pty Ltd are not licensed to provide financial product advice under the Corporations Act 2001 (Cth)and taxation is only one of the matters that must be considered when making a decision on a financial product, including on whether to make superannuation contributions. You should consider taking advice from the holder of an Australian financial services licence before making a decision on a financial product.