Updated: Mar 15, 2021
A company director is required by the Companies Act 2001 (Cth) (the Act) to perform a range of statutory duties, including preventing insolvent trading (see s. 588G of the Act). Failure to perform this duty can result in the company continuing to trade while insolvent, leaving creditors out of pocket.
The Act gives liquidators the power to cancel transactions, clawback money and prosecute directors personally for liabilities they incurred on behalf of the company while insolvent.
This led directors deliberately backdating their resignations in order to avoid responsibility (one of the unethical practises that the so called Phoenixing Act aims to prevent).
A director's resignation cannot resolve the director from personal responsibility for the company's debts. At times, directors have signed personal guarantees for the company's debts i.e. loans, lease agreements. Those guarantees are sometimes mentioned in the fine print of those commercial documents. Further action must be taken to secure a waiver or indemnity in favour of the departing director in order to be relieved of this responsibility.
Finally, we note that ASIC must be notified of a director's resignation (within 28 days of resignation). If ASIC is notified later, the resignation will take effect on the date ASIC is notified, not the date of resignation! The director remains at risk for claims made against the director i.e. for breaches of director's' duties, insolvent trading or unpaid tax liabilities. Instead of waiting for the company to notify ASIC, the resigning director may notify ASIC directly. It is also prudent for the resigning director to request a resignation confirmation from the company.