Legislation introduced into the House of Representatives on July 4 contains measures that will prevent directors from backdating the effective date of their resignation and from ceasing to be a director in circumstances where it would leave the company with no directors.
The first measure is aimed at preventing directors from backdating their resignation or “dragging their heels” in notifying the Australian Securities and Investments Commission (ASIC) of their resignation (currently the director or company must notify ASIC within 28 days of the director’s resignation). The draft law seeks to achieve this by deeming that any resignation reported to ASIC more than 28 days after it occurs will only take effect from the day it is reported to ASIC. This change will help to ensure that outgoing directors remain accountable for decisions that were made whilst they were a director of the company by preventing outgoing directors from backdating their resignations in an attempt to shift responsibility to any incoming or remaining directors of the company (including ‘straw directors’).
The Explanatory Memorandum provides an example of how directors can use gaps in the current law to avoid responsibility. In the example, a director of an insolvent company transferred assets to another company of which he was also a director. Liquidation proceedings were commenced approximately 100 days later, which prompted the director to provide notification of his resignation to ASIC 10 days after that. The director backdated the effective date of his resignation to a date that was before the date on which the assets were transferred (being approximately 120 days prior to notifying ASIC). The proposed legislation covers this gap, as the effective date of the director’s resignation would, under the new legislation, be the date on which notice was given to ASIC (and not 120 days prior).
The proposed provisions will, however, allow a former director or the company to apply to ASIC or the Court to backdate a resignation lodged after the 28 day period if they can prove that the director did in fact resign on the purported date. Applications to ASIC must be made within 56 days of the stated resignation date whilst applications to the Court can be made within 12 months of the resignation date or a later time allowed by the Court.
Under the current legislative regime, there have been situations where a number of companies have been left without a director (which impacts the company’s ability to notify ASIC of the resignation and to appoint a replacement director). The proposed legislation includes measures that seek to prevent directors from resigning where it would leave the company without a director (unless the company is being wound up).
The draft legislation is contained within Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 which also contains draft laws to extend director penalties to GST liabilities.
This article was first published to KPMG Tax Now.
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