Combatting the Illegal Phoenix
On 18 February 2021, reforms to the Corporations Act came into effect that dealt with the timing of Director resignations. These reforms were aimed at preventing phoenix activity by prohibiting directors from improperly backdating their resignations or leaving their company with no directors.
The following Sections were inserted into the Corporations Act 2001:
- Section 203AA – this section works to determine the date upon which a director has taken to resign their position. Where the Notice of resignation (Form 484) is lodged with the ASIC within 28 days of the director formally resigning their position, then the operation of Section 203AA results in the resignation date being the actual date the Director formally resigned. However, if the notification to ASIC is lodged after the 28-day period then the resignation date is taken to be the date upon which the lodgement of the Form 484 occurred.
- Section 203AB – this section prevents a director from resigning their position, if doing so would leave the company without a director at the end of the day upon which the resignation is to take effect (unless the company is being wound up).
- Section 203CA – this section prevents a resolution of the members of the Company being passed where the resolution removes a director from their position and in doing so would leave the company without a director.
These changes are aimed at removing loopholes used by some unscrupulous advisers to assist directors in avoiding responsibility for a company that has become insolvent.
With an expected increase in insolvencies over the course of 2021, directors need to be aware of their obligations and personal exposure arising from acting as directors.
If you have any questions regarding the new legislation or would like to discuss your financial circumstances and restructuring options, please do not hesitate to contact me on 1300 904 946.